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

A generation skipping trust is a type of estate planning tool used to transfer wealth from one generation to another, while bypassing or ‘skipping’ between generations. The goal of a generation skipping trust is to reduce the overall tax burden on the estate both for the current generation and future generations. In Virginia, to set up this type of trust, one must identify a qualified trustee who will oversee the trust and ensure that all funds are used and distributed according to the wishes of the trust creator (also known as the “grantor” or “settlor”). The grantor must also establish the terms of the trust based on their own wishes and any applicable legal requirements. This includes creating a trust document that outlines who the beneficiaries will be, how the trust will be funded, and when and how the trust will distribute assets. Once the trust is set up, the trustee holds the assets in trust for the beneficiaries. The trust can then be used to transfer wealth between generations without incurring gift or estate taxes. The trust can also be used to set up educational funds, establish charitable giving, and help protect assets against creditors. Any assets transferred to the trust pass outside of the grantor’s estate and remain under the control and supervision of the trustee, allowing the grantor to ensure that their wishes are respected. Ultimately, the generation skipping trust is a powerful estate planning tool which can be used to transfer wealth between generations while allowing the grantor to maintain some control over the assets. It is important to consult a qualified estate planning lawyer to ensure the trust is set up properly and all applicable laws are followed.

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

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