What is a Generation-Skipping Trust (GST)?
Exactly what is a generation skipping trust? This type of trust allows the grantor to pass assets to grandchildren or their descendants, thus “skipping” a generation or more. If the amount is placed in trust during a lifetime, limits are imposed under the Gift Tax law and much less can be put into the Generation Skipping Trust. Nevertheless, this planning technique prevents the assets and the appreciation of those assets from being taxed at the death of the grantor and for generations to come.
Key Features of a Generation Skipping Trust
- At least one generation is skipped—Generation skipping trusts most commonly skip the grantor’s children, instead benefiting the grandchildren. The primary goal is to preserve wealth for future generations.
- Reduced estate taxes—With most trusts, assets that are passed on to children and subsequent generations are taxed on each step. A generation skipping trust helps to avoid that—as long as it is structured properly.
- Still subject to a Generation-Skipping Transfer Tax (GSTT)—As tax avoidance is not—and should not be—the sole purpose of a GST, a GSTT is in place. With that in mind, each person in a GST has a lifetime GST exemption, which can be utilized to protect the trust from this tax.
- Protected assets—The assets of a GST never legally belong to the generation being skipped, and thus are protected from lawsuits, creditors, or divorces that could have an impact on the generation.
Who should use a Generation Skipping Trust?
Like most types of trusts, a GST is most effective when used in combination with other trust vehicles. These trusts tend to be quite complicated and must be developed with extreme flexibility to accommodate changing tax laws and family situations that may occur over the years
Why Use a Generation Skipping Trust?
If a grantor seeks to achieve long-term wealth preservation, a GST can be an effective way to do so. It has the potential to minimize taxes and pass down assets with a structured, protected approach. Those who want to ensure their future generations—with the exception of direct children—frequently turn to GSTs due to these benefits.
Diligent Generation Skipping Trust Planning
The financial health of your future generations is something that must be planned thoughtfully. With careful consideration, you can ensure that your grandchildren and those who follow them. The Family Heritage Trust Company can help. Get in touch with us and let’s enrich the financial health of your future generations!