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Can you set up a generation-skipping trust?

On Behalf of | Mar 19, 2024 | Estate Planning |

Estate planning is a multifaceted process involving more than deciding who will inherit your assets after you pass away. For some families, it may be beneficial to consider more complex estate planning tools like generation-skipping trusts.

How do generation-skipping trusts work, and how can you set one up?

What is a generation-skipping trust?

When you set up a generation-skipping trust, you transfer a portion of your estate into the trust. Your children can receive income from the trust during their lifetime, but they cannot access the principal amount. The remaining assets go directly to your grandchildren or later generations upon their death. There are several reasons for creating this type of trust, including:

  • Minimizing estate taxes by reducing the transfer of assets from two generations to just one
  • Preserving wealth for future generations by keeping more resources in the family for a more extended period
  • Maximizing the use of generation-skipping transfer tax (GSTT), which allows an exemption of $11.7 per individual without incurring the tax
  • Protecting family assets in the event of a divorce
  • Controlling the distribution of assets by creating stipulations and conditions under which the money can be used

Setting up a generation-skipping trust in Maryland takes careful consideration. At one time, Maryland allowed for perpetual trusts, meaning there was no limit on the trust’s duration. However, that has changed to limit the length of the trust to 21 years after the death of the last known beneficiary.

It is also crucial to select the right trustee, as they will be responsible for managing the distribution of the trust’s assets. When creating the trust, you will want to work with someone who understands the complexities surrounding a generation-skipping trust. After all, it’s a powerful tool for creating generational wealth.