What is a generation-skipping trust?

A generation-skipping trust is a type of trust that allows beneficiaries to avoid taxation on large transfers of wealth. In a generation-skipping trust, assets are passed from one generation to the next without being subject to taxation. This type of trust is typically used by individuals who have a large estate or wish to provide for future generations. In Pennsylvania, a generation-skipping trust is created in the same way as a traditional trust. It must have a settlor, a trustee to manage the trust, and beneficiaries. However, in order to qualify as a generation-skipping trust, the settlor must designate a future beneficiary who is two or more generations below the settlor. Once established, the trust assets are managed by the trustee according to the settlor’s wishes. The assets are then transferred to the designated future beneficiary or beneficiaries when the trust is terminated. The ultimate beneficiaries of the generation-skipping trust are not subject to federal estate or generation-skipping transfer taxes, which makes this type of trust particularly attractive for those with large estates. In Pennsylvania, it’s important to note that generation-skipping trusts must be carefully planned and managed in order to provide the maximum benefit to all involved. As such, it is important to consult with a knowledgeable trusts and estates attorney to ensure that the trust is properly created and managed.

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