Why do a generation skipping trust

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Measure content performance. Develop and improve products. List of Partners vendors. A generation-skipping trust GST is a type of legally binding trust agreement in which the contributed assets are passed down to the grantor's grandchildren, thus "skipping" the next generation, the grantor's children.

By passing over the grantor's children, the assets avoid the estate taxes —taxes on an individual's property upon his or her death—that would apply if the children directly inherited them. Generation-skipping trusts are effective wealth-preservation tools for individuals with significant assets and savings.

Because a generation-skipping trust effectively transfers assets from the grantor's estate to grandchildren, the grantor 's children never take title to the assets. This is what allows the grantor to avoid the estate taxes that would apply if the assets came into the possession of the next generation first.

Though grandchildren are the most common beneficiaries, the recipient of a generation-skipping transfer doesn't necessarily have to be a family member. Generation-skipping trusts can still provide some financial benefits to the next generation because the grantor can give children access to any income the trust's assets generate while still leaving the assets themselves in trust for grandchildren. Due to the generation-skipping trust's viability as a loophole to avoid federal estate taxes, changes were made to the tax code in that created a generation-skipping transfer tax.

Intended to ensure that people transferring modest sums of wealth to younger generations don't have to bear the brunt of the tax burden, these exemptions were secured by the American Taxpayer Relief Act of However, the GSTT truly applies to the very wealthy because the transferred amount is astronomical. A DC trusts and estates lawyer can provide assistance with all types of estate planning techniques so you can develop a comprehensive plan for your future.

Speak With a Member of our Team. Generally, a generation skipping trust is a trust that provides for a transfer to a skipped person or a skipped generation. Generation skipping issues can be a concern when a grantor wishes to create a dynasty trust or would like to leave assets to a grandchild rather than a child. A skipped person is a natural person assigned to a generation which is two or more generations below the transferor.

A generation skipping trust or the inclusion of a generation skipping trust in an overall estate plan will depend on the goals and the wishes of the client, as well as their overall assets, titling, and nature of their assets. Generation skipping trusts are ones that are reviewed on a case by case basis for inclusion, but generally, clients that would like a generation skipping trust are clients that hope to preserve their assets for their grandchildren or for future generations.

If you are considering including a generation skipping trust in your estate plan or would like to learn more, contact an experienced DC estate planning lawyer. Consider the following:. When you skip a generation, your children do not first take title to the assets, so you avoid that estate tax.

While skipping a generation will not be preferable in every situation, it can be beneficial if your children already have substantial assets of their own and do not necessarily need to inherit from you. You can also provide that the trust assets will skip a generation but that the trust income or discretionary distributions of principal will go to your children, which still provides financial benefits for them.

In addition, by retaining assets in trust rather than giving it to children outright, the assets are protected from their creditors. There is no telling what will happen when the law expires in , however.