The federal estate tax is in abeyance this year. The popular press has picked up on the possibility that the estates of billionaires such as the late George Steinbrenner will escape the tax. The House Ways and Means Committee and the Senate Finance Committee are now considering two questions: what the rate and maximum exemption will be when the estate tax returns and whether the tax will be reinstated for this year. Lurking behind the headlines but equally important is another tax, the federal generation-skipping transfer tax (GST Tax), which is also in abeyance this year. In 1986, the 99 Congress passed the GST Tax. The purpose was to supplement the federal estate and gift taxes. When private wealth shifts from generation to generation or bypasses a generation without incurring federal estate or gift taxes, the GST Tax steps in and fills the void. When the 99th Congress passed the GST Tax, it added a provision known as the GST Exemption. The GST Exemption allows trust settlors to create trusts without incurring GST Tax. The maximum amount originally exempted was $1 million ($2 million for a married couple), but over time, the maximum amount was increased to $3.5 million ($7 million for a married couple). When the 99th Congress fashioned the GST Exemption, the duration of private trusts was controlled by state perpetuity law. State perpetuity law was then undergoing reform in the states, but the reforms retained the basic durational limit that has been part of Anglo-American law for centuries. Presumably relying on the states to honor tradition, the 99th Congress did not impose a federal durational limit on trusts that qualify for the GST Exemption. With federal law out of the way, the only law blocking a tax exemption for perpetual trusts was state perpetuity law, but that obstacle soon crumbled. As a result of interstate competition for trust business, the state-law perpetuity landscape changed dramatically. The absence of a durational limit on the GST Exemption spawned a movement in the states to repeal or modify state perpetuity rules to allow trust settlors to create trusts that can last forever or for several centuries. It is now well documented that the wealthy are creating GST-exempt perpetual or near-perpetual trusts in large numbers in these trust-friendly states. Considerable private wealth is pouring into GST-exempt trusts from out-of-state settlors, thereby escaping federal transfer taxation for centuries and in some cases forever. The loss of tax revenue will become more acute as time passes. The 111th Congress now has a perfect opportunity to close the loophole in the GST Exemption. The 2010 tax bill is still being finalized. Congress should adopt a durational limit that is calibrated to the generations-based policy of the GST Tax. A few years ago, the Staff of the Joint Committee on Taxation wisely proposed a two-generation limit. Under the Staff proposal, a trust would not qualify for the exemption if it can continue beyond the death of the youngest beneficiary who is no more than two generations younger than the trust settlor. A softer approach would be to provide that a trust initially qualifies for the exemption but loses its exemption once the youngest beneficiary who is no more than two generations younger than the trust settlor passes away. Either approach would put a halt to the ill-advised perpetual or near-perpetual trust movement and the unwarranted loss of tax revenue that is now occurring. Unless and until Congress acts to stop them, trust settlors will continue to pour private wealth into GST-exempt perpetual or near-perpetual trusts this year, next year, the year after, and every future year, and more and more states will modify their perpetuity rule to encourage them to do so.