Grandparent and their grandchild

Everyone wants to pass down their legacy and their assets to someone, and most do this through a Will. While a Will is a good first step, other documents can help make sure your loved ones have something after you pass. Trusts are a great way to do that, and there are many types of Trusts for many different scenarios.  

In this article, we look at the Generation-Skipping Trust. And it is exactly what it sounds like, a Trust that will skip a generation when passing down assets. So, if you have grandchildren or anyone who is 37½ years younger than you, this can be a great way to pass along your legacy to the younger generations.  

You can set up this Trust in a few different ways. It can completely bypass your children and go straight to your grandchildren (in the grandparent example) if the children just don’t need the assets or you just plain don’t want them to have the money. You can also make it so your children do have a say in how the assets are distributed, or you can leave them some access to the funds for their lifetime, and then if your children pass away, it will automatically transfer to your grandchildren. 

While this Trust can be a good way to help avoid some estate taxes it may be subject to a tax called generation-skipping transfer tax (GSTT). This is a federal tax that results when there is a transfer of property to a beneficiary who is at least 37½ years younger than the donor.

The GSTT tax rate is a HEFTY 40%.

The good news is that most people will never be subject to the GSTT because it only applies when the transferred amount exceeds $11.4 million per individual. However, the current administration is considering lowering that threshold to as low as $3.5 million, which means many more people would be subject to this tax.

If the GSTT is just too great, another option is a Dynasty Trust, where money is available to each generation through specific distributions, while never being reduced by transfer taxes.  Seem complicated? That's because it is! Trusts can be hard to fully understand, so if you'd like to learn more about them, download our FREE report 5 Trusts That Can Wreck Your Estate Plan here!

Interested in this document or a Trust in general? Give us a call at 978-657-7437 to book your Strategic Planning Session with one of our attorneys. Not ready to book just yet? No problem! Download Attorney Monteforte's FREE book, Planning Ahead, to get educated on estate planning!

To learn more about GST specifically, read this article by ElderLawAnswers here.