Generation Skipping Trusts

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Idesire2FIRE
Posts: 7
Joined: Sun Jul 16, 2017 10:19 am

Generation Skipping Trusts

Post by Idesire2FIRE » Sun Nov 12, 2017 9:45 am

Can you direct me to the wiki or a website that can help me understand the pros/cons of a Generation Skipping Trust?
Thank you for your time.

MNGopher
Posts: 195
Joined: Tue Jun 16, 2015 1:44 pm

Re: Generation Skipping Trusts

Post by MNGopher » Sun Nov 12, 2017 10:20 am

I can think of a pretty big con for at least one of the generations involved.


Determined
Posts: 83
Joined: Sat Aug 12, 2017 7:43 pm

Re: Generation Skipping Trusts

Post by Determined » Sun Nov 12, 2017 3:08 pm

My brother and I were beneficiaries of a generation skipping trust. The majority of it is farmland. It was set up in 1989, and our parents received the farmland rental income. Our only invovlment until my mother passed this year was that we received the statements.

Gill
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Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Generation Skipping Trusts

Post by Gill » Sun Nov 12, 2017 3:52 pm

The concept is really quite simple. Grantor establishes a trust, giving a life interest to child or children and remainder to grandchildren upon death of the income beneficiaries. There can be variations of this and also estate tax ramifications, but the concept is basically that children are given an income interest with the principal ultimately passing to the next generation.
Gill

Idesire2FIRE
Posts: 7
Joined: Sun Jul 16, 2017 10:19 am

Re: Generation Skipping Trusts

Post by Idesire2FIRE » Mon Nov 13, 2017 9:08 am

Thank you to everyone that responded and to Gill for the concise explanation.
Is the interest on the GST taxed at the parent's income rate or can it be left in the GST and continue to grow?
Can the interest be transferred into the grandchildren's' 529 to be used by them and anything left over go to their children as it grows tax free?

cadreamer2015
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Location: North County San Diego

Re: Generation Skipping Trusts

Post by cadreamer2015 » Mon Nov 13, 2017 8:31 pm

As far as I know income is either taxed at the recipients's tax rate if distributed, or at trust tax rates (higher starting at much lower levels of income) if not distributed (i.e. reinvested). Or the trust might be invested in tax-exempt securities, in which case probably no tax would be owed whether or not the income from tax-exempt securities were distributed.
De gustibus non est disputandum

Gill
Posts: 3599
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Generation Skipping Trusts

Post by Gill » Mon Nov 13, 2017 8:41 pm

Idesire2FIRE wrote:
Mon Nov 13, 2017 9:08 am
Thank you to everyone that responded and to Gill for the concise explanation.
Is the interest on the GST taxed at the parent's income rate or can it be left in the GST and continue to grow?
Can the interest be transferred into the grandchildren's' 529 to be used by them and anything left over go to their children as it grows tax free?
Are you referring to income from the trust? If so, it depends both on the terms of the trust and whether or not income is required to be distributed currently. As for the grandchildren, most trusts direct the remainder to be paid outright upon reaching the age of majority.
Gill

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