Should you consider a generation-skipping trust?

On Behalf of | Jul 9, 2019 | Estate Planning

If you are a well-to-do Florida resident, you likely have become so through hard work and responsible financial decision making. You also likely have made every attempt to pass on those values to your children. But what if those lessons did not take as well as you hoped they would? What if one or more of your children have grown up to be irresponsible when it comes to finances? This is where a generation-skipping trust may be just the estate planning tool you have been looking for.

Investor Guide explains that when you set up a generation-skipping trust, you name your grandchildren as beneficiaries, thereby skipping over your children. You can, however, still provide for your children by structuring the trust document in such a way that they receive the income from the trust during their lifetimes, even though they will never receive the trust assets themselves.

Actually, you can name anyone as your generation-skipping trust beneficiary as long as (s)he is at least 37-1/2 years younger than you and not your spouse or former spouse.

Tax advantages

Your generation-skipping trust offers you two distinct tax advantages. When you establish it, you can take advantage of the generation-skipping transfer tax that amounts to $5.49 million. Then at your death, your estate can take advantage of the estate tax exemption which likewise amounts to $5.49 million. These two exemptions each rise to $11.2 million if you and your spouse jointly establish the trust.

Personal advantages

In addition to tax advantages, your generation-skipping trust also gives you peace of mind in the following ways:

  • If one of your married adult children goes through a divorce, his or her spouse cannot receive any part of the trust.
  • If one of your children encounters financial difficulties, his or her creditors cannot access the trust assets for debt repayment.
  • Your trust provides for your grandchildren while not disinheriting your children.

While you should not interpret this information as legal advice, it can help you understand generation-skipping trusts and how you could benefit from one.