What is Generation-skipping Trust?
A Generation-skipping Trust is a legally valid trust document where the grantor's properties are handed down to the grantor's grandchildren, thereby "skipping" the grantor's children. Property taxes would be applicable if the grantor's children actually inherited them. But as it is passing over the grantor's children, the real estate tax is not required.
Understanding of Generation-skipping Trust
The grantor's children cannot obtain ownership of the properties. This happens because a generation-skipping trust ultimately moves properties from the grantor's estate to grandchildren. It enables the grantor to mitigate estate taxes. But the real estate tax would be applicable if the assets passed to the upcoming generation first.
The beneficiary of a generation-skipping handover does not have to be a friend or family; however, grandchildren are by far the most usual beneficiaries. Those who are at least 37 years younger than the grantor and is not a partner or ex-partner can be the beneficiary.
This kind of trust can still provide some financial advantages to the following generation. If the grantor wants, he/she can give his/her children any profits earned through the trust's properties but at the same time put the properties themselves in trust for grandchildren.
Practical Example
Mr. Diego is an old man who wants to transfer an inheritance to his or her grandchild. But he doesn't want to pass the properties or assets to his own children because he thinks his children would waste his hard-earned money in vain. So, he decided to make a generation-skipping trust and the added bonus would be the taxes on them can be avoided. The properties flow tax-free to the receiver at the death of the skipped generation.
In Sentences
- The term generation-skipping trust is used to indicate a legal contract or documentation.
- Generation-skipping trust is for those who want to pass their inheritance to their grandchildren but not their own children.
- Generation-skipping trust means skipping the immediate generation and passing the properties to future generations.