Generation-skipping trusts, also known as dynasty trusts, are designed primarily to avoid estate taxes each time one generation transfers wealth to the next generation.
For a number of reasons, the government seems to think that family wealth ought to pass from one generation to the next, without “skipping” over anyone. However, that’s not always the way the world works (or the way folks want to distribute their assets)
What if you want to provide for your grandkids instead of your children?
This is one time when extra planning is crucial to escape a series of tax law traps. As a result, this planning may require a generation-skipping or “dynasty” trust.
The idea that wealth ought to trickle down from generation to generation is, if nothing else, a way of guaranteeing that taxes are paid at each level. On the other hand, it’s not necessarily in keeping with your plans or modern reality. For example, who would have anticipated the student debt so many grandchildren face today?
For whatever reason, you might want to skip a generation in your estate distribution. The estate planning vehicle to accomplish this objective is a trust, specifically a “generation-skipping” or “dynasty” trust.
For more information, check out an article in ProducersWeb titled Generation-skipping Trusts.
While there are many limitations, and perhaps also a growing political battle to further limit such trusts, there are very real gains to be secured for you and your family.
These trusts can become complicated very quickly, so competent counsel will be necessary to determine whether a generation-skipping trust is appropriate for your unique circumstances and, if so, then to implement it.
Reference: ProducersWeb (April 11, 2012) “Generation-skipping Trusts”