Generation-Skipping Trust

A Generation-Skipping Trust is an estate planning vehicle designed to transfer wealth to grandchildren or later generations while bypassing the immediate children of the grantor. This type of trust is often used to minimize or avoid estate taxes that would typically be levied when assets are passed from one generation to the next.

In a Generation-Skipping Trust, the grantor sets up a trust and specifies that the income generated by the trust assets will be distributed to the grandchildren, while the children may receive little or no benefit. This allows the grantor to effectively skip a generation in terms of wealth transfer, thereby potentially reducing the overall estate tax burden on the family’s wealth.

For example, if a grandparent establishes a Generation-Skipping Trust for their grandchildren, the trust can hold various assets, such as investments or real estate. The income produced by these assets can be used for the grandchildren’s education or other expenses, without those assets being included in the estate of the children. By doing so, the trust helps preserve the family wealth for future generations while reducing the impact of taxes that would otherwise apply upon the death of the children.

In the context of Texas, including areas like Houston, the Generation-Skipping Trust can be particularly beneficial due to Texas’s lack of a state income tax and the potential for minimizing federal estate taxes. This makes it a strategic option for families looking to maintain wealth across generations while adhering to state laws regarding trusts and estates.