In 1934 a Grandmother Named Sarah Getty Put the Family’s Oil Shares Into a Trust for Her Grandsons. Ninety Years Later Her Descendants Still Draw on It, and the Kind of Trust She Signed Costs a Few Thousand Dollars to Draft Today

If you hold a brokerage account, a family business, or real estate that you plan to leave to grandchildren, federal law gives you a tax break that most families never use. An irrevocable trust for grandchildren, combined with the generation-skipping transfer (GST) tax exemption, can move assets past the children’s generation for good. In 2026, that exemption is $15 million per person. One of America’s best-known oil families has relied on a version of this setup for about 90 years.

A Depression-Era Trust Still Shapes Getty Family Wealth

The Sarah C. Getty Trust was created in 1934 by J. Paul Getty and his mother, Sarah Catherine Getty, who was 81 at the time. Together they funded it with roughly $3.37 million in securities from their budding oil companies. The trust was designed to hold Getty Oil shares for later generations, and by the time Texaco acquired the company, that original capital had compounded to approximately $3 billion in after-tax proceeds, a nearly 15% annualized return over five decades.

J. Paul Getty controlled the trust during his lifetime and served as its trustee. After his father died in 1976, Gordon Getty took over as trustee. Before the company sold to Texaco, the Sarah C. Getty Trust owned 40.2% of Getty Oil’s stock, and Gordon Getty arranged the $10 billion sale.

A family dispute over dividing the trust, then valued at about $4 billion, was settled in 1985. The trust was split, with large portions going to the families of the three surviving sons. A recent family history notes the trust still “continues to bind them.”

How Skipping a Generation Keeps Estate Tax From Hitting Twice

Federal taxes can hit wealth each time it passes down a generation. A parent’s estate pays estate tax, and the child’s estate may face the same levy before grandchildren ever inherit. When a gift skips the middle generation entirely, a separate GST tax applies at a flat 40%. The exemption shields transfers from that tax up to its limit. When a donor properly allocates the exemption to a well-drafted trust, the assets and all their subsequent growth can reach grandchildren and more distant descendants free of GST tax.

Where the $15 Million Figure Comes From

The exemption traces to Internal Revenue Code Section 2631. The One Big Beautiful Bill Act, signed into law on July 4, 2025, raised it to $15 million and permanently aligned it with the estate tax basic exclusion. The IRS set the exclusion at $15,000,000 for individuals who die in 2026, up from $13,990,000 in 2025. Beginning in 2027, the $15 million figure will be adjusted annually for inflation. A married couple can shelter roughly $30 million combined. The annual gift exclusion is $19,000 per recipient.

Who Gains the Most and Who Gains Little

Any U.S. individual who wants to pass assets to grandchildren or much younger beneficiaries can use the exemption. The tax benefit is largest for families whose total wealth, including expected growth over decades, could exceed the exemption amount. Households well below that threshold get little tax savings, because estate tax would likely never apply to them anyway. For those families, the case for a trust rests on control and creditor protection rather than tax savings. Anyone who may need the assets back should understand that an irrevocable trust generally cannot be undone.

Steps for Setting Up a Grandchildren’s Trust in 2026

1. Hire an estate attorney. State law determines how long a trust can last. Some states limit trust length through the rule against perpetuities, while others allow trusts that run for many generations.
2. Name a trustee and set rules for distributions. A spendthrift clause blocks a beneficiary’s creditors from reaching trust assets before the money is paid out.
3. Fund the trust. Gifts above the $19,000 annual exclusion draw down part of the $15 million lifetime exemption. Gifts to a trust count toward the annual exclusion only if the trust includes specific qualifying terms.
4. File IRS Form 709 to report the gift and allocate GST exemption to the trust.

One Missed Form Can Expose the Trust to a 40% Tax

Most plans go wrong at the exemption allocation step. Trusts that can also pay out to children may fall outside automatic allocation rules, leaving assets exposed to the 40% GST tax. Gift donors must generally file Form 709 by April 15 of the following year. A late allocation is valued at the assets’ worth on the filing date, so any growth that occurred before filing uses up more of the exemption than it would have if filed on time.

Income tax is a separate concern. For 2026, individuals pay the top 37% rate on income above $640,600. Trusts face that same rate far sooner: a non-grantor irrevocable trust hits the 37% bracket at just $16,000 of retained taxable income in 2026, roughly 40 times lower than the individual threshold. That compression is a deliberate feature of the tax code, and it is why most trust documents direct the trustee to distribute income to beneficiaries rather than hold it inside the trust.

Editor’s note: This article was updated to include the initial capitalization of the Sarah C. Getty Trust (approximately $3.37 million in Getty company securities in 1934) and the fact that capital grew to roughly $3 billion in after-tax proceeds by the Texaco sale. The One Big Beautiful Bill Act’s signing date of July 4, 2025 was added, along with the detail that the $15 million GST and estate tax exemption will be indexed for inflation starting in 2027. The trust income tax bracket threshold was updated to reflect the confirmed 2026 figure of $16,000, at which point trusts reach the top 37% federal rate.

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