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2 reasons people may choose to create a generation-skipping trust

On Behalf of | Apr 6, 2023 | Wills And Trusts |

Trusts are useful inclusions in many people’s estate plans. They can help someone achieve their personal legacy goals, from setting up a charitable resource for disadvantaged college students to providing for a family member with special needs. The intent of a trust informs the best structure for someone to use, and there are many different options available for unique circumstances. One of the types of trust people sometimes add to their estate plans is the generation-skipping trust.

As the name implies, a generation-skipping trust helps establish resources for grandchildren when someone dies without the middle generation having control over those assets. What are the common reasons for using a generation-skipping trust to structure a legacy?

1. They have invested heavily in their children

It is quite common for those who achieve success in their professional lives to invest heavily in their children throughout their upbringing. From sending children to private schools to helping them pay for college, there are many ways in which successful parents hope their children follow in their footsteps.

When someone has already given their children the best opportunities in life, they may then want to allocate resources to help give their grandchildren similar options in the future. A generation-skipping trust is an excellent way to keep resources within the family while helping support the education or entrepreneurship of grandchildren.

There could also be scenarios in which someone worries that their children will misuse or mismanage inherited resources intended for the grandchildren. A trust allows someone other than the beneficiary’s parents to control their assets before they become adults themselves.

2. They have tax concerns

Sometimes, there will be a reason for someone to worry about the tax obligations for what they leave for family members. Perhaps they have a very large family and also a very large estate that might be subject to estate taxes.

A generation-skipping trust can be a useful tool for those worried about how taxes would affect their legacy and decrease how beneficial an inheritance was for their loved ones. They can potentially set aside up to $5 million without creating any tax obligations for beneficiaries.

Exploring various estate planning tools, including different types of trusts, can help people take control over the legacy they’ll leave when they die.