In part, the federal estate tax is intended to make it, so wealth does not accumulate in one family indefinitely. It may be questionable how well the idea works. However, the idea is that as property passes down from succeeding generations in a family, the government will take a cut in each generation. People have often found ways around this.
One way around it is by arranging for the inheritance to skip generations within a family. Instead of leaving property to their children, wealthy people would leave it to their grandchildren and even great-grandchildren. Congress did not like this, so it created a tax on these generation-skipping transfers as Wealth Management discusses in “GST Tax Exemptions in Jeopardy.”
However, Congress left open an exemption from these taxes for generation-skipping transfers from irrevocable trusts that were created before Sep. 25, 1986. This created another issue though. If one of those old exempt trusts is modified, it is not always clear whether it continues to be the same trust or whether it should really be viewed as a new trust, which would subject the transfer to the tax. The answer depends on how the IRS decides to rule in most cases.
If you have an old, exempt trust or are the beneficiary or trustee of one, then it is extremely important that you go to a wills and trusts attorney, as soon as you begin to consider modifying the trust in any way. That will allow you to get the best advice about what you should and should not consider doing.
Reference: Wealth Management (May 18, 2018) “GST Tax Exemptions in Jeopardy.”