Blog | Ball Morse Lowe

What should I know about generation-skipping trusts?

Written by Ball Morse Lowe | April 15, 2019

You may be drawn to a generation-skipping trust because of its ability to help you plan for your grandchildren’s future. Through this estate planning tool, you will be able to place a certain portion of your estate into a trust that will bypass your children and directly benefit the next generation.

Experts point out that you can also enjoy the benefits of compound interest. For example, you could put shares of mutual funds or stocks into the trust, which could grow for years until your grandchildren are ready to take over the trust. As the grantor, you may be able to make money from the income that the trust’s assets generate.

There are significant tax advantages to using a GST. As the American Bar Association points out, you can transfer up to $5.43 million in a gift, estate or generation-skipping trust without having to pay a transfer tax. Those assets will also be deducted from your total estate, which could help you avoid paying estate taxes.

Additionally, you can put $2 million per person into a GST and the total amount will be tax- upon withdrawal. Anything over that amount, however, would be taxed. Therefore, if you place $3 million in a trust, the extra $1 million will be subject to the federal estate tax rate upon withdrawal.

Evaluating your options for your estate is a great way to get control over what happens to your asset following your death. An experienced professional can help you determine what makes the most financial sense for you, your children and your grandchildren.

While this information may be useful, it should not be taken as legal advice.