How a Generation-Skipping Trust Can Benefit Your Family
There are multiple types of trusts that can be used to carry out your wishes about the distribution of your estate among beneficiaries. One, in particular, that might favor a grandparent is a generation-skipping trust. As the name implies, a GST is used to convey assets directly to grandchildren without them going through their parents first. A generation-skipping trust may save your family from paying estate and inheritance taxes twice.
How Do Generation-Skipping Trusts Work?
A generation-skipping trust is a legally binding document that allows you to transfer assets directly to your grandchildren. However, there are some restrictions that should be considered. While having a blood relation with grandchildren is not necessary for the trust to be effective, they are required to be at least 37.5 years younger than you. In addition, the law specifies that the beneficiary of the generation-skipping trust cannot be a spouse or ex-spouse.
What are the Benefits of Generation-Skipping Trusts?
Asset protection
Any assets that are being transferred through a generation-skipping trust will not be included in the grandchildren’s estate. This will provide the assets with extra protection.
Avoid extra estate taxes.
One of the main benefits of choosing to set up a generation-skipping trust for grandchildren is to skip a round of estate taxes. The trust will skip kids and go directly to the grandchildren. Therefore, estate taxes will only be paid once.
It’s easier to plan large estates.
Generation-skipping trusts are great for planning large estates. This type of trust makes it easy to plan the family legacy and ensure that the grandchildren receive financial support as intended.
Is a Generation-Skipping Trust revocable or Irrevocable?
A generation-skipping trust is classified as an Irrevocable Trust, meaning it cannot be changed or revoked after being created. It’s important to mention that an irrevocable trust doesn’t always mean you have to give up all the power in the estate. You can plan the trust in such a way that you can determine exactly how the estate is invested and the way that the assets are distributed to the beneficiaries. An Irrevocable Trust provides asset protection benefits because, in these types of trusts, assets are considered conveyed at execution.
How Do You Create a Generation-Skipping Trust?
Creating a generation-skipping trust is not as straightforward as writing a will. The complex process in preparing legal documents to stipulate generation distribution should be carefully considered. The assets will be put into escrow and will be owned by the trust until the grandchildren reach majority age. We are here to help deal with the complicated legal process through competent counsel and emphatic guidance.