A Generation-Skipping Trust (GST) is a type of irrevocable trust designed to transfer assets to beneficiaries who are at least two generations younger than the grantor, typically grandchildren or great-grandchildren. The purpose of a Generation-Skipping Trust is to take advantage of the generation-skipping transfer tax (GSTT) exemption and potentially avoid the imposition of taxes that would apply if the assets were passed directly to the skip generation.

Key features of a Generation-Skipping Trust include:

1. **Irrevocable Nature:**
– A Generation-Skipping Trust is typically irrevocable, meaning that once the assets are transferred into the trust, the grantor relinquishes control over those assets. This is a crucial aspect to achieve the intended tax benefits.

2. **Generation-Skipping Transfer Tax (GSTT):**
– The GSTT is a federal tax imposed on certain transfers that skip a generation. By utilizing a Generation-Skipping Trust, the grantor can make use of the GSTT exemption to shield a certain amount of wealth from taxation when transferred to skip-generation beneficiaries.

3. **Beneficiaries:**
– The beneficiaries of a Generation-Skipping Trust are often grandchildren or great-grandchildren, but they can also include other individuals who are at least two generations below the grantor. The trust can be structured to provide for the financial well-being and needs of these beneficiaries.

4. **Trustee:**
– The grantor appoints a trustee to manage and administer the trust. The trustee has fiduciary duties to act in the best interests of the beneficiaries and to follow the terms and provisions of the trust document.

5. **Distribution Provisions:**
– The trust document specifies when and under what conditions distributions can be made to the beneficiaries. The grantor has the flexibility to determine the terms of distributions, such as age milestones, educational expenses, or health-related needs.

6. **Dynasty Trust:**
– A Generation-Skipping Trust is often structured as a dynasty trust, allowing the trust to continue for multiple generations. This structure aims to preserve family wealth and provide for successive generations while minimizing estate taxes.

7. **Allocation of GSTT Exemption:**
– The grantor has the option to allocate the GSTT exemption to the trust, shielding a certain amount of assets from the generation-skipping transfer tax. Proper allocation and planning are essential to maximize the tax benefits.

8. **Crummey Powers:**
– Some Generation-Skipping Trusts include Crummey powers, which allow beneficiaries to withdraw a limited portion of contributions to the trust for a specified period. This withdrawal right helps qualify the transfers for the annual gift tax exclusion.

9. **Flexible Planning:**
– Generation-Skipping Trusts can be customized based on the specific goals and preferences of the grantor. This flexibility allows for tailoring the trust to meet the unique needs of the family and accommodate changing circumstances.

10. **Legal and Tax Advice:**
– Establishing a Generation-Skipping Trust involves complex legal and tax considerations. Grantors should seek the advice of legal and tax professionals to ensure compliance with applicable laws and regulations.

It’s important to note that the tax laws and regulations, including those related to the GSTT, may change, and individuals considering the creation of a Generation-Skipping Trust should stay informed about the current legal and tax landscape. Consulting with experienced professionals is crucial for effective estate planning and wealth transfer strategies.