Saving the family farm: Dynasty trust planning in Missouri and federal generation-skipping transfer tax

Kathleen Overton is a lawyer at Paths Law Firm in the Kansas City area and will join Chinnery, Evans & Nail in November 2026. Her practice focuses on estate planning, elder law, Medicaid planning, probate, and trust administration. She earned her J.D. from the University of Oklahoma College of Law, graduating with distinction, and her LL.M. in taxation, with a certificate in estate planning, from Boston University.

The Holloways 

Jack and Susan Holloway, a fictional married Missouri farm couple in their late 60s, own and control a multigenerational northwest Missouri farming operation comprising approximately 4,800 acres of highly appreciated farmland, acquired through inheritance and purchase.¹ In addition to the land, the family’s balance sheet includes equipment, grain inventory, and other farm operations. Combined, the family’s aggregate wealth exceeds $27 million. But as is common among farming families, much of that value is illiquid land and operating assets, not cash. 

The Holloways have three adult children: Ethan, a full-time farmer on the family farm; Claire, a certified public accountant in Kansas City; and Megan, a teacher in St. Louis. Jack and Susan’s goals include preserving the farm indefinitely for their descendants, treating all descendants fairly, providing ongoing benefits to future generations, and allowing descendants who farm to maintain operational control. 

One possible solution is to use generation-skipping transfer-exempt Missouri dynasty trusts to keep the land in the family while giving on-farm heirs sufficient control to keep the farm operating and off-farm heirs the benefit of the family’s resources. Indeed, Missouri’s rule against perpetuities reform and favorable trust law make it a prime jurisdiction for such dynasty trust planning. This article examines the GST tax framework, Missouri’s reform of the rule against perpetuities, and factors to consider when designing and drafting a GST-exempt Missouri dynasty trust.

Federal generation-skipping transfer tax framework 

The Holloways’ plan must consider more than just dispositive provisions. To achieve their goals of providing for future generations and maintaining ownership of the family farm, the plan must also address the generation-skipping transfer tax. Before crafting a successful plan for them, the estate planner must understand the GST tax structure and why minimizing it is critical to the family. 

Purpose of the GST tax 

When structuring the federal transfer tax, the federal government assumed that each generation would pass on wealth to the next and that it would impose a transfer tax on each transfer. Before 1976, wealthy families could avoid one level of the transfer tax by leaving a portion of their wealth to grandchildren or future generations, either outright or in trust. When left in trust, one or more individuals could still have beneficial enjoyment of the assets, including powers over and interests in them, without incurring transfer tax liability, so long as the property remained in trust. Recognizing this planning technique, in 1976 Congress enacted the generation-skipping transfer tax as a backstop to prevent wealthy families from avoiding transfer taxes by skipping over generations of beneficiaries. 

The GST tax is housed in 26 U.S.C. §§ 2601-2664 and applies to assets that skip one generation and transfer to the next without being subject to the estate or gift tax. Every individual, however, is allowed a GST exemption amount — separate from the federal estate and gift tax exemption — that may be allocated to property transferred by the individual to insulate it from GST tax.² Beginning in 2004, I.R.C. § 2631 tied the GST exemption amount to the estate/gift unified credit system, making it equal to the estate tax applicable exclusion amount,³ currently $15 million per person, indexed for inflation.⁴ 

GST tax applicability 

GST tax is imposed when property is subject to a generation-skipping transfer. Such a transfer occurs when property passes to a “skip person,” or a person assigned to a generation that is at least two or more generations younger than the transferor’s generation.⁵ There are generally three types of generation-skipping transfers: (1) the direct skip, (2) the taxable distribution, and (3) the taxable termination. 

A direct skip occurs when the transferor transfers the asset, either during life or at death, directly to a skip person or to a trust that qualifies as a skip person.⁶ For example, if the Holloways were to transfer the land directly to their grandchild or a trust for the benefit of their grandchildren, bypassing Ethan and his sisters, either now or at the survivor’s death, the transfer would be subject to both the estate/gift tax and the GST tax as soon as the transfer occurs.⁷ 

Next, the GST tax applies to a taxable distribution. A taxable distribution occurs when income or principal is distributed from a trust to a skip person.⁸ For example, Jack and Susan could create a trust for the benefit of Ethan, Claire, Megan, and their grandchildren. The trust could provide for distributions of income and principal to all beneficiaries, at the trustee’s discretion. Because Jack and Susan’s children, who are non-skip persons, are beneficiaries of the trust, the trust is not a skip person, and the transfer to the trust is not a direct skip. But, when the trustee distributes either income or principal to Jack and Susan’s grandchildren, it is a taxable distribution and subject to GST tax. 

The final situation in which GST applies is a taxable termination. A taxable termination occurs when a beneficiary’s interest in a trust is terminated.⁹ For example, the Holloways create a trust that pays income to Ethan, Claire, and Megan for their lives, but upon the death of the last of them, the remainder is distributed to Jack and Susan’s grandson, if living. At the death of the last Holloway child, there is a taxable termination because the trust property passes to a skip person, a grandson. 

GST tax calculation 

Calculating the GST tax due is a two-step process: (1) determining the applicable fraction and (2) determining the inclusion ratio. The applicable fraction determines the portion of a trust or property transferred in a direct skip that is exempt from GST tax because of the GST exemption allocated to that trust or property.¹⁰ The numerator of the applicable fraction is the amount of the GST exemption allocated to the property transferred to a trust or to the direct skip.¹¹ The denominator of the applicable fraction is the fair market value of the transferred property at the time of the transfer.¹² 

Next, the inclusion ratio is calculated by subtracting the applicable fraction from one.¹³ It determines which portion of the trust or property transferred to a direct skip is subject to GST tax. To determine the applicable tax rate, the inclusion ratio is multiplied by the highest marginal estate tax rate in effect at the time, currently 40%.¹⁴ 

For example, if Jack creates a trust for the benefit of Ethan, Claire, and Megan for their lives, with the remainder passing to his grandchildren, and transfers $10 million of land to the trust while allocating only $2 million of GST exemption to the trust, the applicable fraction would be 1/5 ($2 million/$10 million). The inclusion ratio would be one minus 1/5, or 4/5. The applicable tax rate on any GST arising from the trust would be 32% (40% x 0.80). 

Importance of skipping the GST tax 

If Jack and Susan, like many families, pass the estate equally to Ethan, Claire, and Megan, the children will own the inherited property in their own names, even if the estate tax is avoided in the first generation. Assuming the children do not lose the property through involuntary transfers such as divorce, remarriage, or creditor claims, the land will continue to appreciate, possibly resulting in taxable estates at the deaths of Ethan, Claire, and Megan. When Jack and Susan’s children subsequently transfer the property to their children, another transfer tax may be imposed. As the same land is passed down from generation to generation, ownership and control become fractionalized, and the property is repeatedly exposed to transfer taxation as it descends the family tree. Because of the illiquid nature of much of the Holloways’ estate, the repeated need to pay transfer taxes could result in the sale of farming assets to provide sufficient liquidity to pay the assessed tax. 

If Jack and Susan, however, create a coordinated estate and GST plan, they may be able to preserve the land for generations to come. For example, Jack and Susan may transfer their farm-related assets into dynasty-style trusts that are exempt from the GST tax. They could allocate their GST exemption to the trusts, resulting in an applicable fraction of one and an inclusion ratio of zero. Ethan, Claire, and Megan may be beneficiaries but are not outright owners. The land is protected from divorcing spouses, remarriage, and creditors, and family control is maintained. As appreciation continues over the next 20-30 years, the farm is not included in the children’s estates at their deaths, and no additional transfer tax is due. The farm is not treated as though it must be “re-purchased” from the government every time one generation passes away. Further, assuming the original allocation from Jack and Susan was effective and that no later additions or other events have tainted the trust’s GST-exempt status, future generations may become beneficiaries of the trust, and subsequent distributions will not trigger GST liability. 

Missouri’s modification of the rule against perpetuities and dynasty trust planning 

One obstacle to the tax-free transfer of assets through dynasty trust planning has been the rule against perpetuities. Originating in England in 1685, the rule against perpetuities arose from public policy aimed at preventing restraints on the alienation of property.¹⁵ In Missouri, the rule against perpetuities “prohibits the granting of an estate which will not necessarily vest within a time limited by a life or lives then in being and twenty-one years thereafter together with the period of gestation necessary to cover cases of posthumous birth.”¹⁶ This rule was the sole limitation on a settlor’s ability to create a perpetual trust to avoid transfer taxes. 

The rule against perpetuities remained largely intact until recently.¹⁷ After Congress enacted the GST tax in response to the use of trusts to avoid transfer taxes, estate planners sought new ways to minimize estate taxes and maximize the use of the GST exemption. They began allocating the GST exemption to trusts that could hold appreciating assets, which were then exempt from GST tax throughout the trust term. The rule against perpetuities, therefore, became a significant constraint on the use and continued benefit of such a trust. As a result, many states, including Missouri, began perpetuities reform.¹⁸ 

Perpetuities reform in Missouri 

In 1993, Missouri enacted Mo. Rev. Stat. § 442.557, which extended the perpetuities period by using powers of appointment. The statute provided that, in determining the validity of limitations arising from the exercise or lapse of a testamentary general power of appointment, the perpetuities period began to run from the death of the donee of the power, not from the creation of the power. While this statute signaled a weakening of the strict application of the rule against perpetuities, the rule was not effectively abolished as to trusts until Mo. Rev. Stat. § 456.236 was enacted in 2001. After its enactment, trusts created or amended on or after Aug. 28, 2001, were not subject to the rule against perpetuities if the trustee had the power to sell the trust assets for as long as the trust continued beyond the period of the rule against perpetuities. The drafting committee comment at the time the statute was enacted explained the rationale for amending the rule centered on the ability of the state’s banks and trusts to retain the trust business of Missouri residents.¹⁹ 

Missouri trust law 

In addition to the effective abolition of the rule against perpetuities for trusts, Missouri trust law further strengthens the state’s standing as a top-tier jurisdiction for dynasty planning.²⁰ Missouri statutes allow the trustee to retain and operate the farm, delegate operations when appropriate, and amend the trust to reflect the family’s changing dynamics while preserving the GST exemption. 

As an initial matter, unless a mandatory rule provides otherwise, Missouri lets the trust instrument control.²¹ If a dynasty trust expressly authorizes the trustee to retain and operate the farmland, those terms govern the trustee’s powers and duties. Mo. Rev. Stat. § 469.901 states the settlor may expand or restrict the prudent investor rule by express provisions in the trust instrument. When a trust’s purpose is to preserve a family farm, the statute’s language supports maintaining a concentrated farmland position rather than requiring diversification.²² 

Moreover, Missouri statute gives the trustee the powers conferred by the trust, “all powers over the trust property which an unmarried competent owner has over individually owned property,” and any other powers appropriate for the investment, management, and distribution of trust property.²³ The statutes provide for broad umbrella powers necessary to hold and manage a family farm. In addition to the broad powers conferred upon a trustee, the statute also supplies the specific operational powers necessary for managing farmland, i.e., the power to borrow money and mortgage or pledge trust property; continue a business; improve and repair real property; enter into leases; insure trust property; handle environmental issues; pay employees; hire advisors; and sign contracts and other instruments useful for exercising trustee powers.²⁴ 

Missouri also permits delegation. Mo. Rev. Stat. § 469.909 allows a trustee to delegate investment and management functions that a prudent trustee could properly delegate, with appropriate oversight. The trustee is not required to perform every management function. In a farm setting, Missouri law allows the trustee to hire and rely on professionals such as a farm manager, operating tenant, crop consultant, accountant, lawyer, bookkeeper, land manager, appraiser, or environmental consultant, if doing so is prudent for the trust and the farm. Although a subsequent trustee may lack agricultural expertise, the trustee may delegate farm management to qualified experts. 

The trust may also be a directed trust. Mo. Rev. Stat. § 456.8-808 provides for bifurcated authority, allowing a trust protector or other directing party to direct investment and management decisions while the trustee retains administrative authority. For a farm dynasty trust, an estate planner can use a directed trust to separate administrative trusteeship from farm management control. A bank or professional fiduciary may serve as an administrative trustee responsible for keeping the books, filing taxes, and making distributions. At the same time, a trust protector, a farm-savvy person, or a committee directs farm management, including selecting the farm manager or operator and deciding whether the land is leased or cash-rented. 

Finally, Missouri trust law offers significant flexibility for trustees managing perpetual trusts using trust protectors and decanting. The trust protector statute allows the settlor to designate a nontrustee power holder to adapt the trust over time without replacing the entire structure or going to court to modify it.²⁵ The ability to adapt the trust is especially valuable in a farm dynasty trust because farmland is a long-term, illiquid, operational asset. The trust can grant a protector the authority to help maintain the trust’s alignment with the family’s needs. For example, the trust protector may be able to replace a trustee, change the situs to a more favorable jurisdiction, or amend the administrative language to reflect changes in farm entities, financing practices, or tax rules. 

Missouri’s decanting statute, Mo. Rev. Stat. § 456.4-419, also allows a trustee with discretionary distribution authority to transfer trust property from an existing trust to a new trust with revised terms without first seeking court approval. The statute gives the trustee flexibility to update administrative provisions, split a large farm trust into separate branch trusts, or improve the trustee-succession language. Although Missouri provides guardrails intended to preserve the zero-inclusion ratio under I.R.C. § 2642(c), decanting a trust which has a GST-exempt status derived from an affirmative allocation of exemption requires careful federal transfer tax analysis to ensure the revised trust does not jeopardize the original transfer’s exempt status.²⁶ 

Missouri as the situs for the trust 

Missouri’s amendment to the rule against perpetuities, along with favorable trust law, creates an ideal environment for trust administration. Administering a dynasty trust in Missouri, when both the settlor and the trust’s principal asset are located there, strengthens the trust’s connection to Missouri law and to the favorable provisions governing dynasty trusts. 

State tax laws are also favorable for trust administration in Missouri. Effective Jan. 1, 2005, Missouri repealed its state estate tax, so dynasty trusts avoid state estate tax at each generational transfer.²⁷ However, Missouri has a state income tax, and trust income “shall be computed in the same manner as in the case of an individual except as otherwise provided.”²⁸ 

Designing and drafting a GST-exempt dynasty trust for a family farm 

The benefit of GST tax planning is realized only if the GST exemption is properly allocated to a well-drafted dynasty trust funded with appreciating assets. Planning continues to protect assets only if sufficient flexibility is built into the trust to allow future generations to adapt it to changing needs. The estate planner should consider the following structural elements to maintain tax efficiency and ensure smooth trust administration for generations to come. 

Structural elements of the trust 

First and foremost, there is no general federal rule requiring a trust to include special GST language to obtain the GST exemption. Instead, a trust becomes GST-exempt when the GST exemption is properly allocated to it under I.R.C. §§ 2631 and 2632, either on Form 709 if funded during life or on Form 706 if funded at death. Nevertheless, the trust terms remain important. 

In addition to expressly including the trustee powers provided under Missouri law, the following is a brief list to consider when structuring a farm dynasty trust in Missouri: 

• Express statement of purpose. The trust should explicitly state that the grantors intend it to operate as a long-term or perpetual family trust for the preservation of family farmland and the management of transfer taxes. Although Missouri generally allows trust terms to control and gives trustees broad management powers over trust property, an express statement of purpose may guide the interpretation of trustee decisions regarding nondiversification, retention of farmland, and subsequent modifications.
• GST allocation and separate accounting provisions. The trust should authorize the trustee to divide trust property into GST-exempt and nonexempt shares when appropriate and to maintain separate accounting and administration for those shares. Although not required, this authority provides flexibility to accommodate different GST exemption allocations and helps preserve the intended transfer tax treatment of each share.
• Qualified severance and partition authority. The trust should authorize the trustee to sever or divide the trust into separate trusts or shares as appropriate. The authority should extend beyond divisions between GST-exempt and nonexempt property to permit separate branch trusts or trusts for different family lines. This flexibility may be particularly helpful in a case like the Holloways’ situation, where one descendant farms while the others do not.
• Limitations on beneficiary powers. The trust should carefully limit beneficiary powers to avoid unintended estate inclusion, taxable gifts, or other transfer tax consequences. For example, the trust may allow a beneficiary to borrow from the trust, but if the power is too broad or exercised carelessly, it may be treated as a withdrawal right or a power to compel access, potentially resulting in estate inclusion. Poorly drafted beneficiary powers may thwart even the best-designed GST tax planning.
• Flexible, tax-conscious powers of appointment. The trust should use carefully limited powers of appointment to provide flexibility for future generations without triggering unintended transfer tax consequences. Properly structured powers can allow the trust to respond to changing family circumstances and tax laws, but overly broad powers may result in estate inclusion or other adverse transfer tax outcomes.
• Dynasty planning distribution standards. The trust should use distribution standards that provide sufficient flexibility for long-term administration without creating unnecessary estate or gift tax exposure. Broad discretionary authority may be useful if the trust must be decanted later, as Missouri’s decanting statute depends on such authority. However, granting excessive discretionary distribution authority to the wrong party may create estate and gift tax issues. 

A well-drafted and thoughtful dynasty trust provides sufficient flexibility to be workable in the long term while offering guardrails to ensure the GST exemption is not wasted, and that family wealth is preserved. 

Ownership and control

Although popularized as a tax-avoidance mechanism, the dynasty trust enables a family farmer to create an entity that separates operational control from beneficial interest and enjoyment. Such a structure can be critical when there are on-farm and off-farm heirs, as with the Holloways. To provide even greater ease of management, the Missouri dynasty trust structure may be combined with a business entity, such as a limited liability company, further separating ownership, control, and enjoyment. 

For example, the farming operation may be placed in an LLC, “the Farm LLC.” The LLC interests are then funded into a dynasty trust. The estate planner drafts the dynasty trust to include an independent trustee, a distribution trustee, and a farm management advisor or trust protector. The Farm LLC is structured with a manager to handle farm operations, while the trust owns the Farm LLC interests and the trustee administers the trust. The trust protector appoints or removes the Farm LLC managers and advises on farm retention and sale issues. The distribution trustee handles distributions to on-farm and off-farm heirs. Missouri law supports this structure by recognizing the trustee’s powers granted in the trust. 

For families like the Holloways, this means the nonfarming heirs, Claire and Megan, may receive rights such as discretionary distributions, mandatory income rights, and remainder interests. However, they do not necessarily have equal voting power over whether a tract is sold, leased, mortgaged, improved, or operated. Instead, Ethan or a subsequent farm manager may make those decisions. Moreover, even if future generations choose not to stay on the farm, Jack and Susan’s farming legacy is preserved because professional trustees administer the trust and manage the Farm LLC. At the same time, the heirs continue to enjoy the financial benefits. 

Conclusion 

Dynasty trusts are an efficient way to pass the family farm to future generations. They not only limit transfer taxes but also allow the family farmer to pass the farm’s benefits to future generations efficiently and fairly while keeping the farming operation intact for on-farm heirs. Because of the weakening of the rule against perpetuities and Missouri’s favorable, flexible trust law, Missouri is a prime jurisdiction for dynasty trust planning and administration. Jack and Susan would be wise to create a Missouri dynasty trust now to protect the family’s largest asset from future transfer taxes while allowing Ethan to continue his livelihood and both daughters to enjoy the benefits of the family farm.

Endnotes 
1 The family and factual scenario described in this article are fictional and were created for illustrative purposes. Any resemblance to actual persons, families, or circumstances is coincidental. 
2 I.R.C. § 2631. 
3 EGTRRA amended I.R.C. § 2631 to tie the GST exemption amount to the estate/gift unified credit system. Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, § 521(c)(2), 115 Stat. 38, 72; I.R.C. § 2631(c). 
4 Act of July 4, 2025, Pub. L. No. 119-21, 139 Stat. 72. 
5 I.R.C. § 2613(a)(1). 
6 I.R.C. § 2612(c). 
7 I.R.C. § 2613(a)(2). 
8 Id. § 2612(b). 
9 Id. § 2612(a). 
10 Id. § 2642(a)(2). 
11 Id. § 2642(a)(2). 
12 I.R.C. § 2642(a)(2). 
13 Id. § 2642(a). 
14 Id. § 2641(b). 
15 41 AM. JUR. 2d, Perpetuities and Restraints on Alienation § 6, at 53. 
16 Trautz v. Lemp, 329 Mo. 580, 46 S.W.2d 135, 138 (1932). 
17 Max M. Schanzenbach & Robert H. Sitkoff, Perpetuities or Taxes? Explaining The Rise of the Perpetual Trust, 27 CARDOZO L. REV. 2465 (2006) (examining the reasons for perpetuities reform to include not only transfer tax avoidance, but also a settlor’s continued control). 
18 Id. at *2495, noting 21 states have abolished the rule against perpetuities as applied to trusts. 
19 BORRON, MISSOURI PRACTICE: PROBATE AND SURROGATE LAWS MANUAL § 456.025 (2d ed. current pocket part). 
20 See Steven J. Oshins, 9th Annual Dynasty Trust State Rankings Chart, Oshins.com, https://www.oshins.com/_files/ugd/b211fb_79b9ea83b72543e995ad71695279d4e3.pdf (last visited April 4, 2026). 
21 MO. REV. STAT. § 456.1-105. 
22 Id. § 469.903 requires diversification unless the trustee reasonably determines that, because of special circumstances, the purpose of the trust is better served without diversifying. 
23 Id. § 456.8-815. 
24 MO. REV. STAT. § 456.8-815. 
25 Id. 
26 MO. REV. STAT. § 456.4-419 prohibits the second trust from including or omitting terms that would have caused the original transfer to fail the zero-inclusion ratio treatment under I.R.C. § 2642(c). 
27 MO. REV. STAT. § 145.01. 
28 MO. REV. STAT. § 143.311.