Generation-Skipping Trust
Estate planningGlossary term
Definition
A trust designed to transfer assets directly to grandchildren or later generations, bypassing the children's generation to minimize the total estate taxes paid across multiple generations. Without this type of trust, assets could be taxed at each generational transfer, significantly reducing the amount that ultimately reaches future descendants. The generation-skipping transfer tax (GST tax) applies to transfers above a certain exemption amount to prevent unlimited tax-free transfers across generations.
Related terms
- Irrevocable TrustA trust that generally cannot be changed, modified, or revoked once it has been established, effectively removing the assets from the grantor's ownership and control. Because the assets are no longer considered part of the grantor's estate, irrevocable trusts can provide significant estate tax benefits and asset protection from creditors. They are commonly used in advanced estate planning strategies where tax reduction and wealth preservation are primary goals.
- Estate TaxA federal or state tax imposed on the transfer of a deceased person's assets to their heirs, calculated based on the total value of the estate above a certain exemption threshold. As of recent years, the federal estate tax exemption is quite high, meaning most estates do not owe federal estate tax, though some states impose their own estate taxes with lower thresholds. Proper estate planning using trusts and other strategies can help reduce or eliminate estate tax liability.
- Gift TaxA federal tax applied when someone transfers money or property to another person without receiving something of equal value in return, above the annual exclusion amount set by the IRS. The annual gift tax exclusion allows individuals to give a certain amount per recipient per year without triggering any tax reporting requirements. Gifts above the annual exclusion count against your lifetime estate and gift tax exemption.
- TrustA legal arrangement in which one party, called the trustee, holds and manages assets on behalf of another party, known as the beneficiary. Trusts can be used to control how and when your assets are distributed, potentially reduce estate taxes, and avoid the probate process. There are many types of trusts, each designed to address specific financial and estate planning goals.
Get advice that uses your real numbers
Warren reads your accounts and explains what terms like this mean for your plan. Free to start, no credit card required.