Generation-Skipping Trust

A generation-skipping trust (GST) is a trust designed to avoid or minimize estate taxes. It does this by transferring assets to a trust that is not subject to estate taxes until the second generation (or later) inherits the assets.

There are two types of GSTs: direct skips and taxable distributions. A direct skip is a transfer of assets directly to a skip person (a person who is two or more generations younger than the grantor). A taxable distribution is a distribution of assets from a trust to a skip person.

The GST tax is levied on the value of the assets transferred to a GST. The tax rate is the same as the estate tax rate, which is currently 40%. However, the GST tax is only imposed on the portion of the trust that is attributable to the grantor's estate.

There are a number of rules that govern GSTs. For example, the grantor of a GST must be alive at the time the trust is created. The trust must also be irrevocable. In addition, the trust must meet certain other requirements in order to qualify for GST tax treatment.

GSTs can be a valuable tool for estate planning. They can help to reduce or eliminate estate taxes, and they can also provide for the orderly distribution of assets to future generations. However, GSTs can be complex and there are a number of rules that must be followed in order to qualify for GST tax treatment. It is important to consult with an experienced estate planning attorney before establishing a GST.

Here are some additional details about GSTs:

* The GST tax is imposed on the value of the assets transferred to the trust, not on the value of the trust itself.
* The GST tax is only imposed on the portion of the trust that is attributable to the grantor's estate.
* The GST tax is not imposed on the assets that are distributed from the trust to a non-skip person.
* The GST tax is not imposed on the assets that are distributed from the trust to a skip person if the distribution is made after the death of the grantor.
* The GST tax is not imposed on the assets that are distributed from the trust to a skip person if the distribution is made to a trust that is eligible for the GST exemption.

If you are considering establishing a GST, it is important to consult with an experienced estate planning attorney to discuss the pros and cons of this type of trust and to make sure that the trust is properly structured to meet your specific needs.