What is a generation-skipping trust?

A generation-skipping trust is a type of trust set up in some states, including Texas, to distribute assets across multiple generations. This type of trust allows the trustmaker (or grantor) to leave assets directly to their grandchildren or great-grandchildren. The trustmaker can designate the beneficiaries and how the assets will be distributed over time, while also avoiding potential taxes on the transfer of assets. When creating a generation-skipping trust, the trustmaker may choose a trustee, someone to manage the trust assets, and a beneficiary designee, the person who will receive the assets. The trustmaker can also name a guardian for the beneficiaries, if necessary or desired. The trustmaker chooses how the trust assets are to be managed and spent, and when the assets will be distributed to the designated beneficiary, including establishing age or other requirements, such as education or marriage, for the beneficiary to receive the assets. The Generation-Skipping Transfer Tax also applies to all generation-skipping trusts. The tax is designed to prevent people from avoiding paying taxes every time they transfer assets to a new generation. The tax may be due when the trust is established, or when assets are transferred out of the trust to the beneficiary. Although generation-skipping trusts can be a great tool for transferring wealth to future generations, they can be complex and difficult to navigate. Before creating a generation-skipping trust, it is important to speak with an experienced trust and estate attorney to understand the legal requirements and ensure the trust is executed properly.

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What is a generation-skipping trust?

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