A generation-skipping trust (GST), also known as a dynasty trust, is a legal instrument designed to transfer assets to skip persons while minimizing estate and generation-skipping transfer taxes.
The primary purpose of a GST is to preserve wealth for future generations by bypassing the immediate children and transferring assets directly to grandchildren or great-grandchildren.
Benefits of a Generation-Skipping Trust
Minimizing Estate Taxes
By using a GST, an estate planning attorney can reduce or eliminate estate taxes that would otherwise be incurred if assets were passed directly to their children and subsequently to their grandchildren. Instead, the assets are placed in the trust, and the transfer taxes are deferred until they are distributed to the skip persons. This can result in significant tax savings for the overall estate.
Preserving Wealth for Future Generations
A GST allows for the long-term preservation of wealth within a family. By creating a trust that spans multiple generations, the assets held within the trust can continue to grow and provide financial support for future descendants. This ensures that the family’s wealth and resources are maintained and used to benefit skip persons for years to come.
In addition to tax advantages, a GST can also provide asset protection benefits. Assets held within the trust are shielded from the creditors of the beneficiaries, including divorcing spouses or potential lawsuits. This protection helps to safeguard the wealth accumulated within the trust and ensures that it remains within the family bloodline.
Control Over Asset Distribution
With a GST, the estate planner retains control over how and when assets are distributed to the skip persons. The trust document can outline specific conditions or restrictions on distributions, such as age milestones or the attainment of certain achievements. This level of control allows the estate planner to ensure that the assets are used responsibly and in accordance with their wishes.
Considerations for Creating a Generation-Skipping Trust
Creating a GST requires careful consideration of various factors. It is essential to work with an experienced estate planning attorney who specializes in generational wealth transfer and tax planning.
The attorney can guide you through the process, help you understand the tax implications, and assist in drafting a comprehensive trust document that aligns with your goals and intentions.
It’s also important to note that there are specific tax rules and limitations associated with generation-skipping transfers. The generation-skipping transfer tax (GSTT) is imposed on transfers exceeding the exemption amount set by the IRS.
Therefore, it is crucial to stay informed about the current exemption threshold and consult with a professional to ensure compliance with tax regulations.
Let’s Get Started!
If you are considering incorporating a generation-skipping trust into your estate plan, or if you simply want to work with a professional to understand how you should proceed, we can help.
We have looked at one of the estate planning tools that can be utilized here, and there are many others. The ideal way to proceed will depend on the circumstances, so personalized attention is key. This is exactly what you will receive when you choose our firm.
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