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Using generation-skipping trusts for maximum benefit

If you are looking for estate planning tools that may help you provide for specific needs of your grandchildren, you may want to consider a generation-skipping trust. These trusts are crafted specifically for individuals who wish to leave something special to a family member at least two generations younger. Using such a trust, a person can transfer a significant amount of money or property to a beneficiary tax free, if certain qualifications are met.

In addition to granting you the opportunity to make this special gift, this kind of trust lets you determine how the funds are dispersed and even dictate some terms of use. For instance, if you choose to leave a significant sum of money to a grandchild, you can choose for them to receive the gift at one time or plan regular payouts to them. Similarly, you can insist that the funds only be used for certain purpose, such as education expenses.

As you design and fund your trust, however, be mindful of the current value limit set on these gifts. Should you exceed the value limit, you may trigger a generation-skipping tax. This tax is primarily implemented to deter grandparents from moving unlimited wealth to their grandchildren to avoid taxation. While the trust does provide for substantial gifting to a grandchild, there are still hard limits to the tax exemption.

If you think that a generation-skipping trust may suit your needs, you can consult with an experienced estate planning attorney. With professional guidance, you can learn how to craft a personalized trust that meets your gifting needs while maximizing your tax benefits.

Source: CNN Money, "Estate planning: Types of trusts," accessed Sep. 29, 2017

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