Generation-Skipping Trusts Attorney

A Generation-Skipping Trust is an opportunity for the Grantor to set up a Trust that transfers their assets to a skipped generation. Instead of passing on your assets to your children or grandchildren, you can pass them to your grandchildren or great-grandchildren.

When one generation hopes to protect their assets for the use of future generations, setting up a Generation-Skipping Trust may be in their best interests. You may also want to avoid leaving your estate to your children and instead set up a Generation-Skipping Trust that will pay out assets and distributions to your grandchildren or great-grandchildren at specific points throughout their life as described in the Trust instructions.

However, Generation-Skipping Trusts can be used for anyone who is at least 37.5 years younger than the Grantor. There are many tax advantages that come with generation-skipping trusts, which give you an opportunity to reduce potential tax implications to your beneficiaries down the line.

Some of the advantages of Generation-Skipping Trusts include:

One of the biggest disadvantages of a Generation-Skipping Trust is the fact that they are considered Irrevocable Trusts. This means you do not have the power to amend or cancel them. The assets contained within the Trust will also no longer be under your control, and will instead be administered by a Trustee.

You can create a Generation-Skipping Trust when you are designating beneficiaries who are two or more generations below you. However, the amount of assets that can be placed into a Generation-Skipping Trust may be limited to a maximum amount that will be adjusted annually for inflation. Anything greater than this amount may be subject to federal taxation.

Generation-Skipping Trusts allow you to avoid separate estate taxes, which will allow your beneficiaries to inherit your assets tax-free. You also have the opportunity to place assets in the Generation-Skipping Trust that can generate income over time. For instance, if you originally placed assets at a rate of 10% annually, this could grow to over $1 million over time.

The distributions from a Generation-Skipping Trust are not taxable. However, if the distributions are used to generate additional income, the income generated would be considered taxable income.

You might be expected to pay a Generation-Skipping Tax if you attempt to leave money to beneficiaries by skipping a generation. However, you can avoid the Generation-Skipping Tax by creating a Generation-Skipping Trust.

You may also be expected to pay estate taxes for estates worth more than $12.7 million, and gift tax if your gifts exceed your lifetime exclusion.

Generally, Generation-Skipping Trusts are considered irrevocable, which means they cannot be amended, dissolved, or revoked. However, if the Generation-Skipping Trust was created fraudulently or the grantor was not of sound mind when creating it, the court has the authority to dissolve the Trust and render it invalid.                                                                                                 

Generation-Skipping Trusts are generally controlled by the Trustee. The Trustee will be responsible for managing the distributions to beneficiaries until they reach a certain age.

Depending on the details described in the Generation-Skipping Trust, beneficiaries may have the authority to start taking disbursements as soon as they reach the age of 18, 21, or 25. However, it is ultimately up to the Grantor to set instructions to be followed by the Trustees and beneficiaries alike.

If you are interested in creating a Generation-Skipping Trust, you must first work with your Estate Planning attorney to decide whether it is a good fit for the rest of your Estate Plans. If you want to provide income to generations down the line, making sure to construct your Generation-Skipping Trust with taxes in mind will be essential.

Be sure to go over your assets with your attorney to determine which ones should be transferred to the Generation-Skipping Trust to find it. Once the Generation-Skipping Trust has been created, it cannot be amended or changed. For your lawyer to draft your Generation-Skipping Trust documents, you will need to decide who your beneficiaries are going to be.

You can go over all of the details contained within your Generation-Skipping Trust, so your Trustee, Successor Trustee, Co-Trustees, and Trust Protectors understand your instructions as described and follow them accordingly. Next, your Trust documents need to be signed, and your Trust needs to be funded for the Generation-Skipping Trust setup to be complete.