Creating a trust is a popular method for people to pass assets to their beneficiaries while keeping the impact of taxes to a minimum. There are many types of trust, allowing you ample freedom to control the distribution of your assets and who benefits from them after you die. For instance, if you want to pass assets to your grandchildren, you can create a generation-skipping trust.
What is a generation-skipping trust?
Most people create a generation-skipping trust to pass assets to their grandchildren, hence the name. Essentially, the trust “skips” your children and proceeds to the generation that follows them: your grandchildren. However, the beneficiaries of a generation-skipping trust generally do not have to be your relatives. Rather, they might be anyone at least 37.5 years younger than you.
Why should you create a generation-skipping trust?
Like other types of trust, generation-skipping trusts can help reduce the impact of taxes on your estate after your death. Because your children do not receive the assets in the trust, they also usually do not shoulder the taxes that the government might charge for those assets.
The tax exemption for generation-skipping trusts tends to change over the years. In 2023, the threshold is $12.92 million per individual. This threshold means that a generation-skipping trust transfer that does not exceed $12.92 million generally does not owe taxes. The threshold will likely keep increasing until 2025.
Generation-skipping trusts are a valuable tool to securely transfer your properties to younger loved ones. If you want to create one, an estate planning attorney can help ensure that you do it right and in a manner that effectively protects your assets.