Setting up a Generation-Skipping Trust could be a good option if you do not want to transfer your property and assets to your children, but hope to leave something for your grandchildren.
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There are many reasons why a Generation-Skipping Trust may be a good fit for you and your Estate Plans. Anytime you do not want to transfer your property and assets to your children, but hope to leave something for your grandchildren or great-grandchildren, setting up a Generation-Skipping Trust could be a good option.
However, before you make the decision to start a Generation-Skipping Trust, be sure to discuss your financial needs and goals with a Generation-Skipping Trust attorney at The Law Office of David S. Schleiffarth, LLC.
Contact our office for an initial consultation today and learn more about how Generation-Skipping Trusts work and whether they make sense for you and your family.
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What Is a Generation-Skipping Trust?
A Generation-Skipping Trust is an opportunity for the Grantor to set up a Trust that transfers their assets to a skipped generation. Instead of passing on your assets to your children or grandchildren, you can pass them to your grandchildren or great-grandchildren.
When one generation hopes to protect their assets for the use of future generations, setting up a Generation-Skipping Trust may be in their best interests. You may also want to avoid leaving your estate to your children and instead set up a Generation-Skipping Trust that will pay out assets and distributions to your grandchildren or great-grandchildren at specific points throughout their life as described in the Trust instructions.
However, Generation-Skipping Trusts can be used for anyone who is at least 37.5 years younger than the Grantor. There are many tax advantages that come with generation-skipping trusts, which give you an opportunity to reduce potential tax implications to your beneficiaries down the line.
The Benefits Of Generation-Skipping Trusts
Some of the advantages of Generation-Skipping Trusts include:
- Creating opportunities to pass your wealth on for generations
- Help minimize your estate taxes when transferring assets to beneficiaries
- The opportunity to provide income to multiple beneficiaries across decades
- Avoid the Generation-Skipping Transfer Tax by utilizing a Generation-Skipping Trust
The Disadvantages Of a Generation-Skipping Trust
One of the biggest disadvantages of a Generation-Skipping Trust is the fact that they are considered Irrevocable Trusts. This means you do not have the power to amend or cancel them. The assets contained within the Trust will also no longer be under your control, and will instead be administered by a Trustee.
How Generation-Skipping Trusts Work
You can create a Generation-Skipping Trust when you are designating beneficiaries who are two or more generations below you. However, the amount of assets that can be placed into a Generation-Skipping Trust may be limited to a maximum amount that will be adjusted annually for inflation. Anything greater than this amount may be subject to federal taxation.
Generation-Skipping Trusts allow you to avoid separate estate taxes, which will allow your beneficiaries to inherit your assets tax-free. You also have the opportunity to place assets in the Generation-Skipping Trust that can generate income over time. For instance, if you originally placed assets at a rate of 10% annually, this could grow to over $1 million over time.
Are Generation-Skipping Trust Distributions Taxable?
The distributions from a Generation-Skipping Trust are not taxable. However, if the distributions are used to generate additional income, the income generated would be considered taxable income.
How Much Are Generation-Skipping Taxes?
You might be expected to pay a Generation-Skipping Tax if you attempt to leave money to beneficiaries by skipping a generation. However, you can avoid the Generation-Skipping Tax by creating a Generation-Skipping Trust.
You may also be expected to pay estate taxes for estates worth more than $12.7 million, and gift tax if your gifts exceed your lifetime exclusion.
Contact a Generation-Skipping Trust Lawyer for Help
If you are interested in learning more about whether a Generation-Skipping Trust is the right option to transfer your property and assets to your grandchildren or great-grandchildren, you may need the legal support of an experienced Estate Planning attorney.
Reach out to a Generation-Skipping Trust attorney at The Law Office of David S. Schleiffarth, LLC in St. Louis, Missouri for the guidance you need to decide how to proceed with your estate plans.
Fill out our quick contact form, or text or call our number to schedule your initial consultation as soon as today.
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Can Generation-Skipping Trusts Be Broken or Contested?
Generally, Generation-Skipping Trusts are considered irrevocable, which means they cannot be amended, dissolved, or revoked. However, if the Generation-Skipping Trust was created fraudulently or the grantor was not of sound mind when creating it, the court has the authority to dissolve the Trust and render it invalid.
Who Is In Control Of a Generation-Skipping Trust?
Generation-Skipping Trusts are generally controlled by the Trustee. The Trustee will be responsible for managing the distributions to beneficiaries until they reach a certain age.
Depending on the details described in the Generation-Skipping Trust, beneficiaries may have the authority to start taking disbursem*nts as soon as they reach the age of 18, 21, or 25. However, it is ultimately up to the Grantor to set instructions to be followed by the Trustees and beneficiaries alike.
How to Create a Generation-Skipping Trust
If you are interested in creating a Generation-Skipping Trust, you must first work with your Estate Planning attorney to decide whether it is a good fit for the rest of your Estate Plans. If you want to provide income to generations down the line, making sure to construct your Generation-Skipping Trust with taxes in mind will be essential.
Be sure to go over your assets with your attorney to determine which ones should be transferred to the Generation-Skipping Trust to find it. Once the Generation-Skipping Trust has been created, it cannot be amended or changed. For your lawyer to draft your Generation-Skipping Trust documents, you will need to decide who your beneficiaries are going to be.
You can go over all of the details contained within your Generation-Skipping Trust, so your Trustee, Successor Trustee, Co-Trustees, and Trust Protectors understand your instructions as described and follow them accordingly. Next, your Trust documents need to be signed, and your Trust needs to be funded for the Generation-Skipping Trust setup to be complete.
When to Hire a Generation-Skipping Trust Attorney
Having a Generation-Skipping Trust attorney working for you is a good option if your goals are to preserve your assets for your grandchildren, great-grandchildren, or further generations.
These types of Trusts are often complex and understanding how they work can help to ensure you plan accordingly and with all family members in mind.
Your Generation-Skipping Trust attorney can ensure the rest of your Estate Plan works well with your plan to create a Generation-Skipping Trust.
It’s best to have an experienced attorney draft your legal documents for you.
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Approachable Estate Planning. From start to finish, we are here to shoulder the load and make Estate Planning easy!
STEP 1
Make an appointment
Call, text, or email and we will find a time that works with your schedule.
STEP 2
Initial appointment
We discuss your life, family, financial situation, & Estate Planning goals. You do not need to bring anything.
STEP 3
Drafting
You do nothing. Relax and we will prepare drafts of your documents in approximately 2 weeks.
STEP 4
Review & approval
You look over your documents. We answer questions and make any changes as needed.
STEP 5
Signing appointment
Once your documents have met your satisfaction, you will sign the final drafts at our office. (In front of 2 witnesses and a notary–provided by us, of course).
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Contact Information
Tel: 314-448-0527
Email: dave@lawofficedss.com
Location
75 W Lockwood Ave #1, Webster Groves, MO, 63119, US
As a seasoned expert in estate planning and Generation-Skipping Trusts, I bring a wealth of knowledge and practical insights to guide you through the complexities of preserving your assets for future generations. With a deep understanding of the legal intricacies involved, I can demonstrate how setting up a Generation-Skipping Trust can be a strategic and advantageous option for those looking to pass wealth directly to grandchildren or great-grandchildren.
Now, let's delve into the key concepts mentioned in the article:
Generation-Skipping Trust (GST)
A Generation-Skipping Trust is a legal tool that allows the grantor to transfer assets directly to a skipped generation, typically grandchildren or great-grandchildren, bypassing the intervening generation. This can be a beneficial strategy for long-term wealth preservation and distribution.
Advantages of Generation-Skipping Trusts
- Wealth Transfer for Generations: Generation-Skipping Trusts create opportunities for long-term wealth transfer to future generations.
- Estate Tax Minimization: They help minimize estate taxes when transferring assets to beneficiaries.
- Income Distribution: The trust can provide income to multiple beneficiaries over several decades.
- Avoidance of Generation-Skipping Transfer Tax: Properly structured trusts can help in avoiding this tax.
Disadvantages of Generation-Skipping Trusts
The primary drawback is that Generation-Skipping Trusts are irrevocable. Once established, they cannot be amended or canceled. Assets within the trust are no longer under the grantor's direct control, as they are administered by a trustee.
Generation-Skipping Trust Eligibility and Tax Implications
- Eligibility: The trust can be set up for beneficiaries at least 37.5 years younger than the grantor.
- Tax Advantages: Generation-Skipping Trusts offer tax advantages, helping to reduce potential tax implications for beneficiaries.
Taxation of Generation-Skipping Trust Distributions
- Distributions: Distributions from a Generation-Skipping Trust are generally not taxable.
- Income Generation: If distributions are used to generate additional income, that income is considered taxable.
Generation-Skipping Taxes
- Generation-Skipping Tax: This tax may apply if attempting to leave money to beneficiaries by skipping a generation. However, creating a Generation-Skipping Trust can help avoid this tax.
Control and Administration of Generation-Skipping Trusts
- Trustee Control: Generation-Skipping Trusts are typically controlled by a trustee who manages distributions to beneficiaries until they reach a specified age.
- Beneficiary Authority: Depending on the trust details, beneficiaries may gain authority over disbursem*nts at specific ages as directed by the grantor.
Creation of Generation-Skipping Trusts
- Legal Assistance: Consulting with an Estate Planning attorney is crucial to determine if a Generation-Skipping Trust aligns with broader estate plans.
- Irrevocability: Once created, a Generation-Skipping Trust cannot be amended or changed.
- Funding the Trust: The trust needs to be funded, and assets must be transferred to it as per the grantor's instructions.
When to Seek Legal Assistance
- Complex Nature: Generation-Skipping Trusts are complex, and consulting with an experienced attorney is recommended.
- Comprehensive Planning: A skilled attorney can ensure the trust aligns seamlessly with the broader estate plan.
In conclusion, the decision to set up a Generation-Skipping Trust requires careful consideration of its advantages and disadvantages, and consultation with a knowledgeable estate planning attorney, such as one from The Law Office of David S. Schleiffarth, LLC, can provide invaluable guidance.
