ACCOUNT ACCESS

Generation Skipping Trust

With the creation of the Federal Estate Tax came the creation of the Generation Skipping Transfer Tax (“GSTT”) as well. Congress did not want people planning to skip a generation of inheritors so that generation would not have to pay the Estate Tax. But Congress did permit an exemption whereby one can skip the next generation with up to $3.5 million (in 2009) of assets without incurring this tax.

Does the concept of passing along your fortune to the future generations of your family appeal to you? If so, then creating a generation skipping trust may be what you need to do.

This type of trust allows the creator to pass assets on to grandchildren or their descendants, thus "skipping" a generation or more. If the amount is placed in trust during lifetime, there are limits imposed under the Gift Tax law and much less can be put into the Trust. Nevertheless this planning technique prevents the assets, and the appreciation of those assets, from being taxed at the death of the donor and for generations to come.

Such trusts can also be created in a Will, using the remaining exemption available to the donor at the donor’s death.

In either case the entire amounts in the trust will be shielded from estate taxes even if it has multiplied many times over by the time it is distributed generations later. Like most types of trusts, generation-skipping trusts are 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 are certain to occur through the years.