Perhaps one or more of your children have proven themselves to be less than responsible when handling and spending money. If so, you may wish to consider establishing a generation-skipping trust to not only protect them against themselves, but also to protect the wealth you have built up over the years. 

Investor Guide explains that you do not disinherit your children when you set up a generation-skipping trust. Instead, you can designate your spendthrift children as beneficiaries of the trust’s income during their respective lives, but your grandchildren as beneficiaries of the assets themselves. 

Actually, you can name whomever you wish as your trust beneficiaries as long as they are at least 37-1/2 years your junior and not your current or former spouse. By far, however, most people name their grandchildren as ultimate trust beneficiaries. 

Generation-skipping trust advantages 

A generation-skipping trust can provide you with the following advantages: 

  • You can save substantial gift taxes by claiming the lifetime $5.49 million gift tax exemption as you fund the trust; this exemption rises to $11.2 million if you and your spouse establish the trust jointly. 
  • Your estate can claim the $5.49 million individual federal estate tax exemption on your passing; should you establish a joint trust with your spouse, the estate of whichever of you dies last can claim an additional $5.49 million exemption, thereby passing $11.2 million to your grandchildren estate-tax free. 
  • Your children’s creditors cannot invade the trust for bill repayment. 
  • Your children’s former spouses cannot invade the trust in the event of divorces. 

All in all, a generation-skipping trust may be just the estate planning vehicle to protect your and your family’s wealth.