Generation-Skipping Trust

AAA

DEFINITION of 'Generation-Skipping Trust'

A type of legally binding trust agreement in which the contributed assets are passed down to the grantor's grandchildren, not the grantor's children. The generation to which the grantor's children belong skips the opportunity to receive the assets in order to avoid the estate taxes that would apply if the assets were transferred to them.

INVESTOPEDIA EXPLAINS 'Generation-Skipping Trust'

Because a generation-skipping trust effectively transfers assets from the grantor's estate to his or her grandchildren, the children of the grantor never take title to the assets. This is what allows the grantor to avoid the estate taxes that would apply if the assets were transferred to his or her children first.

Generation-skipping trusts can still be used to provide some financial benefits to a grantor's children, however, because any income generated by the trust's assets can be made accessible to the grantor's children while still leaving the assets in trust for his or her grandchildren.

RELATED TERMS
  1. Form 706-GS(D): Generation-Skipping ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
  2. Credit Shelter Trust - CST

    A type of trust that allows a married investor to avoid estate ...
  3. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  4. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  5. Trust Deed

    1. A formal document which outlines the terms of a trust agreement. ...
  6. Trust Company

    A legal entity that acts as fiduciary, agent or trustee on behalf ...
RELATED FAQS
  1. What are the restrictions for naming a given individual as my contingent beneficiary?

    Life insurance is an important part of estate planning. It allows you to ensure that you can financially take care of the ... Read Full Answer >>
  2. What is the difference between income tax and capital gains tax?

    The conceptual difference between income tax and capital gains tax is that income tax is the tax paid on income earned from ... Read Full Answer >>
  3. Does Manchester United (MANU) own Old Trafford stadium?

    Old Trafford Stadium was built for and is currently still owned by Manchester United Football Club (Man Utd.). This means ... Read Full Answer >>
  4. Which factors drive the marginal propensity to consume?

    A limited liability company (LLC) is not a separate entity from its business owners but is instead considered a pass-through ... Read Full Answer >>
  5. How do you mediate a dispute between primary and contingent beneficiaries of a trust?

    There may be a dispute between beneficiaries whenever the proceeds of a trust or other transfer on death (TOD) account are ... Read Full Answer >>
  6. What are some of the arguments against a value added tax (VAT)?

    Critics of the value-added tax, or VAT, system say that not only is it costlier to implement compared to the ad valorem system, ... Read Full Answer >>
Related Articles
  1. Taxes

    4 Ways To Minimize Estate Taxes

    These four strategies will ensure that most of your money goes to your loved ones, and not to the government.
  2. Retirement

    Establishing A Revocable Living Trust

    This arrangement allows you to have more control over your estate - both before and after your death.
  3. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  4. Taxes

    A Look At The Generation-Skipping Transfer Tax

    For those who encounter this tax, it can be costly. Find out how to navigate this complicated tax arrangement.
  5. Retirement

    Skipping-Out on Probate Costs

    Don't let bad estate planning lead to unnecessary costs and stress for your inheritors.
  6. Personal Finance

    Get Ready For The Estate Tax Phase-Out

    Changes to federal legislation will affect how your assets are treated once you're gone - be prepared.
  7. Professionals

    5 Estate Planning Must-Dos Before Saying "I Do"

    There are many exciting things to look forward to when a couple gets married; not among them is putting financial affairs in order. Advisors can help.
  8. Personal Finance

    Which Estate Transfer Technique is Right for You?

    This article explains the difference between the two estate transfer methods -- a will and a trust, and the circumstances under which each can be used.
  9. Professionals

    Estate Planning and Elderly and Passed Clients

    By keeping up with new estate tax rules, financial advisors can help elderly clients save big on tax costs.
  10. Economics

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center