Probably no one understands the concept of “pull yourself up by your bootstraps” better than a Texan. This is the state where the gentleman and wildcatter sit next to each other, having a drink and sharing tales.
Hard-working Texans also understand the concept of building wealth to pass on to future generations. Fortunately, the proper estate planning tools can help.
What is a generation-skipping trust?
As the name implies, a generation-skipping trust (GST) allows you to transfer wealth directly to your grandchildren and bypass the immediate next generation (your children). This move can help prevent the double taxation that may occur if assets were first transferred to your children and then on to their children. This allows you to skip one layer of the estate tax and preserve more wealth for future generations.
A GST also has other tax implications. For example, the IRS allows a $13.61 million lifetime exemption per person ($27.22 million per couple). Substantial wealth can be transferred into a GST without incurring a federal generation-skipping transfer tax.
Assets placed in a GST can often be passed on as gifts, which may be subject to the annual gift tax exclusion. This allows you to reduce the size of your taxable estate while ensuring that your grandchildren benefit from your assets.
Furthermore, Texas doesn’t have a state estate or inheritance tax, which provides additional benefits for setting up a GST. Since your primary concern is the federal estate tax, a GST is an appealing option for wealth preservation.
However, there is one significant drawback to creating a GST. They are generally irrevocable, which means it becomes extremely difficult to alter the terms or reclaim the assets without judicial action once you place assets in the trust.
Establishing a GST requires careful planning and consideration. That’s why it’s crucial to have experience legal guidance to help ensure that your trust is structured correctly.