Atlanta Estate Planning, Wills & Probate | Siedentopf Law

What is a Generation-Skipping Trust?


What is a Generation-Skipping Trust? That’s what we’re gonna be discussing today.

I’m Sarah Siedentopf, I’m an estate planning and probate attorney in Atlanta, Georgia. So, Generation-Skipping Trust is pretty much exactly what it sounds like. It is a trust where instead of giving assets to my children, I give them directly to my grandchildren. So it has skipped a generation.

Some generation has not received assets and we’ve gone on to the next one. And now the IRS thinks that a generation is 37 and a half years. So that is how they calculate that. Of course there are some specific exceptions to what would be a Generation-Skipping Transfer, but in general, it’s going to be your grandparents to grandchildren transfer, or I suppose, great aunt to great niece transfer that skips somebody in the middle.

So why would you want to do this? One thing is taxes and assets. So maybe the person in the middle, my children, have already done well for themselves. They’re in a high tax bracket, they don’t need the assets, they don’t want something that’s going to appreciate and they’re gonna have to pay high taxes on it. There just is no actual reason to give them the assets. So in that case, we might skip on down to their children. And then another reason might be desire. Maybe there is a specific emotional or relational reason that I don’t want to give the assets to my children, I want to move them on straight to the grandchildren. Then, Generation-Skipping Trust.

The third reason is also taxes, but specifically, estate taxes. So the tax system expects that things will get taxed at every generation. So if we have skipped a generation, in theory, we are skipping one set of taxes. It gets taxed when I die, it gets taxed when my kid dies, it gets taxed when my grandkid dies, on down the line. But if we just skip straight to grandchild, we’ve skipped one round of taxes. Now, of course, there are specific Generation-Skipping Transfer taxes that could apply because the IRS is aware of this loophole. But at current, we’ve got estate tax exemptions of just over 12 million per person. So that is also going to cover Generation-Skipping taxes. So there still could be a large benefit to skipping a generation if we are underneath that cap.

So that is a Generation-Skipping Trust and why you might be inclined to have one. So thank you for listening and please like and subscribe for more content, thanks.

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