What is a Generation-Skipping Trust?

Most trusts are intended to go to the next generation of children in a family. For example, if you are a grandfather, then your money would go to your son, who would then pass down his inheritance someday to his offspring and so on. Yet there are some grandparents who desire to skip granting finances to their children altogether and instead only want to provide for their grandchildren. They believe that their finances would be better used or stewarded in the next generation, so they want to skip over their children and provide for their growing grandchildren instead. Maybe they want to give the grandchildren money for college, or want to facilitate needs that they may have. Regardless of why, when a person possesses an estate he or she has the right to do whatever he or she wants with the future of the finances.

A person who does not create a will or does not specifically address which children and relatives are heirs will typically have their fortune divided by a probate process. Typically, this means that a surviving spouse would inherit all wealth. If there is no surviving spouse upon death, then the offspring of the decedent will divide the fortune. When a person dies intestate, that is, without a will, then typically the court will appoint the surviving spouse of the decedent the role as administrator of the estate. If the spouse declines or is nonexistent, then the next of kin will receive this assignment. That means that the oldest child normally will have the responsibility of acting as administrator.

In most circumstances, all children get an equal share of their parent’s estate if there is not a surviving spouse to inherit the money. If one sibling has passed away but left descendants, then those descendants are entitled to that share of the inheritance. Only if a decedent has no children and no surviving spouse does his or her estate go to the brothers and sisters. Of course, all of these arrangements can be altered with the help of a legal will. An estate owner has the right to do whatever he or she wants with his or her money. This is why some estate owners may choose to craft a generational trust.

A generational trust is a legally binding trust agreement. All assets within the trust are passed down to the grantor’s grandchildren not the grantor’s children. When a generational trust is created, it normally means that the grantor’s children will not receive any direct benefits of the trust but they may recieve some side benefits such as incomes. As a result, the grantor is able to avoid the estate taxes that would apply if the assets were transferred to the children, rather than the grandchildren. Because the generation-skipping trust transfers assets from the grantor’s estate to his or her grandchildren, the children of the grantor never take a title to whatever assets are involved. This means that the grantor does not need to pay any of the estate taxes that apply to transferring the title to a child first. Generation-skipping trusts are still used to provide financial benefits to the grantor’s children in some circumstances.

This is because the income that is generated by the trust’s assets can be accessible to the grantor’s children, even if the assets are technically willed to the grandchildren. This way, everyone benefits tax-free. Generation-skipping trusts can also be a helpful way for a grantor to avoid complications with the children that would typically receive the estate. For example, if your daughter is going through a divorce and may have to divide her property, then having a generational trust will make sure that her children are provided for post-split, and she may still be able to benefit from some of the income depending on the assets within the trust. Unfortunately, there are limits when it comes to generation-skipping trusts. They are only permitted to protect an estate. These trusts can have up to $2 million per person that will be receiving money. The trusts can be created at any time during a person’s lifetime and any type of asset can be added. Thankfully, the trusts are not taxable so people often put their life insurance policies in the trust as well.

Some professionals request that their parents put their estates into a generation-skipping trust so that lawsuits won’t damage the estate in case there was ever a complication. If you want more information, then you need to hire a local estate planning attorney to come alongside you and clear things up for you today. With a dedicated and hardworking lawyer on your side, you will certainly be able to handle the confusion and complications of running a generation skipping trust!