What are Pros and Cons of a Generation-Skipping Trust?
A generation-skipping trust, or GST, allows a grantor to transfer assets to a benefactor, while skipping a generation of the family. It is usually used in cases where a grandparent wants to leave assets to a grandchild. It is a trust that can be used in situations where the grantor has significant wealth and assets and may be a way to preserve that wealth for the grantor’s descendants.
What is a Trust?
In general, trusts can play an important role in your planning for several reasons. If you are looking into end-of-life planning or are starting the process, it is important to understand what a trust can do for you. An experienced attorney who deals in these matters will be able to assist you in understanding if a trust may be a good option for you. Any money you leave for your beneficiaries can be controlled by a trust after your death. In a will, beneficiaries receive the money when you pass away. In a trust, you can establish when they get the money and how much they receive at each time. These are especially useful for children who would not be able to look after an inheritance properly and may benefit from incremental disbursements.
What is a Generation-Skipping Trust?
Generation-skipping trusts can skip more than one generation. This does not necessarily mean the generation being skipped receives no inheritance. It depends on the grantor’s wishes and how the trust is set up. The trusts can also be set up for specific reasons, like for education, and are usually used in situations where the grantor’s children or heirs have significant wealth of their own.
An experienced estate planning attorney, like those that The Mattar Firm, can help you navigate the pros and cons to having a generation-skipping trust for your specific situation. However, there are some general advantages and limitations to consider.
Using a GST can help save on estate taxes, should they be levied against the estate. It does this by skipping a step in the generational ladder in how assets are left from one generation to the next, thereby saving on estate taxes, which can be around 40 percent, depending on the amount of assets. However, there is a generation-skipping trust tax which can be levied, which was instituted in light of these types of trusts. There is an exemption to this tax, however, which can be claimed up until around $11 million. After that, the tax kicks in. This exemption allows the trust to grow and accumulate wealth for the family.
The biggest limitation of a generation-skipping trust is that it is an irrevocable trust. That means that it cannot be changed or canceled once it is instituted. It can, however, be written with future situations in mind. Therefore, it is important to put a lot of thought into putting a generation-skipping trust in place, including really considering who will benefit from it. Trying to anticipate future changes, like divorces or other issues, can help in making the trust as strong as possible.
There are several types of trusts available to meet a wide range of goals that you may have. In some cases, another trust may be a better fit for your financial or family goals. For example, a revocable trust may allow the grantor to change or revoke the trust until the time of their death.
Putting a generation-skipping trust into place can be a complex process, involving tax considerations, as well as trying to see into the future, and anticipate possible changes. If a GST seems right for you, it is worth consulting with an experienced estate attorney who can guide you through the process and make sure you are making the best decisions for you and your family.
Contact the Estate Planning Lawyers at The Mattar Firm
The Mattar Firm’s compassionate estate planning lawyers are here to listen to your estate planning needs. We can assist you in executing these wishes. Call today for your consultation at 239-222-2222.