What is a generation skipping trust and how does it work?

A generation-skipping trust is a type of estate planning tool used to pass assets from a current generation to a future generation. It can help minimize the number of generations that must pay estate tax. In North Carolina, the laws governing generation-skipping trusts are found in the North Carolina General Statutes section 36C. This law allows an individual to appoint a trustee to manage the trust and transfer assets to beneficiaries that are two or more generations removed from the original source of the assets, thereby “skipping a generation” of the transfer. The assets in the trust can be managed and distributed in accordance to the terms set out in the trust documents. Generally, the assets are kept in the trust until the beneficiaries reach an age specified by the grantor. At that time, the trustee distributes the assets to the beneficiaries according to the trust documents. The grantor or settlor is responsible for setting forth all the conditions and terms of the trust in the documents. This includes who will be the beneficiaries, when assets are to be distributed, and any other conditions. Additionally, the trust must comply with applicable state and federal laws. Generation-skipping trusts are an effective estate planning tool and can help reduce the tax burden on both the grantor and beneficiaries.

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What is a generation skipping trust and how does it work?

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