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You’ve worked hard your whole life to build a legacy—it’s only natural to want to secure it. However, that’s difficult to do without a savvy estate plan.
When wealthy people with large estates pass away, their assets may be subjected to creditors, probate and heavy taxes. As a result, many people decide to put their assets in trusts, which allow them to avoid several penalties, although typically not the estate tax.
For some, paying an estate tax on their inheritance isn’t that big of a deal. However, for beneficiaries of high-value estates, it can be burdensome. This is especially true when the heir is already financially successful and doesn’t need or want assets that will appreciate quickly or cost them a fortune in taxes.
If you’ve accumulated a lot of wealth and so have your children, you may be wondering, Is there some way to avoid this scenario? Luckily there is, and it’s called a generation-skipping trust. However, it’s only beneficial in some circumstances, so it’s crucial to work with an experienced estate planning attorney to review your best options.
Wondering if a generation-skipping trust is right for you? Keep reading to learn how they work, who they work for and how a top generation-skipping trust attorney can help.
At Hunter Sargent, PLLC, we work tirelessly to find the most strategic financial solutions for our clients because we care about their legacies as much as our own. Ready to partner with a passionate legal specialist? Give us a call at (940) 594-7754 to schedule a case evaluation.
A generation-skipping trust is a special kind of fiduciary arrangement by which a grantor (the owner) passes down assets to a later generation that is not their children. The grantor skips over their children to pass the inheritance to their grandchildren or another young person, which is how this trust earned its name.
Although many people select their grandchildren as beneficiaries, they can choose anyone who is at least 37.5 years old younger than them. That means they could also choose their nephew, great-niece, a child they had later in life or a beneficiary of no relation.
Unlike some types of trusts, generation-skipping trusts are irrevocable, meaning they can’t be changed or terminated after creation. Although they provide less flexibility than revocable trusts, they provide more tax and asset protection, which is generally more beneficial to owners of large estates.
The primary purpose of a generation-skipping trust is to avoid paying estate taxes more than once. Normally, very wealthy estates are taxed each time they’re passed from one person to another, and when all the beneficiaries are in the same family, it can add up to a small fortune.
For example, if you passed a large estate to your son who later passed it to his child, it would be taxed each time. However, the generation-skipping trust would allow you to pass it down two generations while only being taxed once, meaning you’d be able to keep more wealth in the family.
When you meet with a generation-skipping trusts attorney, one of the first things you’ll need to decide is who you’ll be appointing as the “skip person,” which is the person who will inherit the trust. According to U.S. Code § 2613, a skip person must be a “a natural person assigned to a generation which is two or more generations below the generation assignment of the transferor.”
Although the skipped generation (the passed over party) won’t inherit any of the trust’s assets, they may be able to benefit from the appreciation of the trust’s assets.
Consulting with a generation-skipping trusts attorney is generally the best way to determine whether or not this trust is the right strategy for you, but reviewing its offerings can also be useful. Here are some of the potential benefits:
In addition to knowing the advantages, it’s equally important to be aware of potential disadvantages. Here are some examples:
Another factor to include in your considerations is the fact that any trust exceeding $11.7 million may be subject to GST taxes and double estate taxation.
Estate planning is complex, but some tools are much more complicated than others. Generation-skipping trusts are typically difficult to establish, maintain and use, which is why, unless you’re a legal professional, you would probably benefit from partnering with an experienced estate planning attorney.
A legal specialist can help you answer the questions you may not think to ask, such as:
These are just a few of the considerations that the attorneys at Hunter Sargent, PLLC, will include in their evaluation of your case. That’s because we understand the importance of protecting our clients’ legacies, and we care about them in the same way we care about our own.
Ready to explore estate planning options with Denton’s premier estate planning attorneys? Contact us online to schedule a consultation or give us a call at (940) 594-7754.
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While this website provides general information, it does not constitute legal advice. Any communication with Hunter Sargent, PLLC via e-mail or through this website does not constitute or create an attorney-client relationship and is not privileged or confidential.