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. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  3. Blind Trust

    A trust in which the executors have full discretion over the ...
  4. Revocable Trust

    A trust whereby provisions can be altered or canceled dependent ...
  5. Trustee

    A person or firm that holds or administers property or assets ...
  6. Trust Deed

    1. A formal document which outlines the terms of a trust agreement. ...
RELATED FAQS
  1. Who first came up with the idea of a progressive tax?

    Theodore Roosevelt was the first U.S. president to call for a progressive income tax, which he encouraged Congress to pass ... Read Full Answer >>
  2. Is progressive tax the same thing as marginal tax rate?

    A marginal tax rate is a form of a progressive tax. Any progressive tax is a tax created based on the amount of income an ... Read Full Answer >>
  3. What are the pros and cons of a progressive tax policy and who benefits the most ...

    Those who oppose a progressive tax hierarchy are likely to be those who pay more taxes when such a policy is in place. A ... Read Full Answer >>
  4. Do all taxes create deadweight loss?

    Taxes create deadweight loss because they prevent people from buying a product that costs more after taxing than it would ... Read Full Answer >>
  5. What's the difference between regressive and progressive taxes?

    The U.S. federal tax system and local and state tax systems are complex in that they combine progressive, regressive and ... Read Full Answer >>
  6. What does U.S. law say about contingent beneficiaries?

    In the United States, posthumous asset transfers only require the listing of a primary beneficiary. Contingent beneficiaries ... 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. 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.
  6. Retirement

    Skipping-Out on Probate Costs

    Don't let bad estate planning lead to unnecessary costs and stress for your inheritors.
  7. Economics

    What is a Fiduciary?

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

    Retirement: The Journey Of 1000 Miles

    Substantial time should be set aside to fully outline one's vision for retirement and the specific steps that must be taken to realize it.
  9. Bonds & Fixed Income

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  10. Taxes

    OK, So I'll Be Smarter Next Tax Time

    5 tax resolutions to start on right now for a smoother tax return next April 15.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center