You have worked hard to accumulate significant wealth over the years. As you look towards the future, you may wonder how to pass your assets to your grandchildren or other younger generations without losing a substantial portion to taxes or relinquishing control.
Setting up a trust is an option for many families. Specifically, a generation-skipping trust can help you transfer wealth while preserving as much of it as possible.
Minimize estate taxes
One of the primary advantages of a generation-skipping trust is its ability to help reduce estate taxes. Under normal circumstances, your estate would be subject to estate taxes each time it passes to a new generation.
With a generation-skipping trust, you can bypass your children’s generation and directly transfer assets to your grandchildren or other individuals at least 37.5 years younger than you. By doing so, you avoid paying estate taxes twice, potentially saving your family a significant amount of money.
Shield assets in a protective trust
Given that a generation-skipping trust is irrevocable, it allows you to protect the assets you place into it. Since your descendants do not own the trust assets, creditors, lawsuits and divorce distributions have little chance to claim them. Additionally, you maintain control over how the assets are managed and distributed, ensuring the completion of your estate wishes.
Encourage legacy planning
Establishing a generation-skipping trust requires you to carefully consider your estate planning goals and the legacy you wish to leave behind. You should determine how you want to distribute your assets, who will manage the trust, and what guidelines or restrictions you want to put in place. This process encourages you to think deeply about your priorities and the impact you want to have on future generations.
Not every family needs a generation-skipping trust, so it is worth the effort to explore all available options. Still, under the right circumstances, this kind of trust can help you avoid obstacles that would deplete your wealth when it should go to those you care for.