You may want to pass your wealth to your grandchildren instead of your children. A generation-skipping trust gives you that option. This trust lets you transfer assets while reducing estate taxes and protecting your legacy.
How it works
A generation-skipping trust (GST) directs your assets to someone at least 37.5 years younger than you, usually your grandchildren. Instead of passing wealth through your children, the trust skips them and names younger beneficiaries. You appoint a trustee who manages the trust and follows your instructions for distributions. The trust gives you control over how your assets move across generations.
Why people use it
People often use a GST to preserve wealth and reduce tax exposure. If your children already have financial security, you can support your grandchildren directly. Many families choose this type of trust to fund education, long-term care, or housing for younger relatives. A GST also prevents rapid spending by keeping assets under the control of a trustee. You can design the trust to meet specific needs or long-term goals.
Tax considerations
The IRS applies a generation-skipping transfer tax to gifts that skip a generation. However, you can use your lifetime exemption to avoid this tax if the trust stays under the limit. If the trust exceeds the exemption, you may face a high tax rate on the excess. You must calculate values carefully and plan ahead to keep the trust tax-efficient.
A generation-skipping trust works well when you want to reduce taxes and protect wealth for future generations. It gives you control and structure while keeping your estate plan aligned with your goals. Clear planning ensures your assets go where you want, when you want.