Which trusts are exempted from GSTT?

The correct choice refers to irrevocable trusts that were created before September 25, 1985. These trusts are exempt from the Generation-Skipping Transfer Tax (GSTT) due to the provisions established in the Tax Reform Act of 1986. This Act introduced the GSTT but grand-fathered certain irrevocable trusts that were already in existence prior to its implementation, thereby exempting them from this tax.

Trusts created before this date are crucial because they are not subject to the new tax regulations that were put in place to prevent wealth from skipping generations without taxation. The rationale behind this exemption is to honor the terms and agreements made by grantors before the new tax law was enacted.

Understanding this exemption is vital for estate planners, as it directly impacts how they structure trusts to minimize tax implications for their clients. In contrast, the other options describe various types of trusts that, due to their timing of creation or the nature of their terms (e.g., being revocable or established after the cut-off date), would not qualify for this specific GSTT exemption, thus making them subject to different tax implications under current laws.