What Is a Generation Skipping Trust in Arizona?
If you are starting the estate planning process, then you may need to know about a generation skipping trust in Arizona. Here's a quick overview of GSTs.
A recent survey found that 1 in 4 Americans have a greater need for estate planning due to inflation. And 63% of young adults are more likely to have an estate plan than in 2020.
Planning for the future is vital, especially if you have an estate to give. That is why a generation skipping trust in Arizona is a good idea for people with significant assets.
There are many trust options available depending on your situation. You will want to understand these types of trusts so that you can prepare your family for your passing. You also want to take advantage of estate laws and estate tax exemption limit today. Estate tax can change tomorrow.
Keep reading to find out more about generation skipping trust in Arizona.
Generation Skipping Trust Definition
Are you wondering what is a GST? This is a common question since many people can be confused about the definition.
A generation-skipping trust is a trust that can skip one or more generations. Keep in mind that this does not mean that generation will not receive any inheritance.
This detail depends completely on the grantor and the trust structure. Some generation-skipping trusts are used if the children already have wealth of their own.
These trusts can go to anyone younger than the grantor by 37 1/2 years. Because of this, the beneficiary has to be two or more generations younger than the grantor.
This type of trust allows you to have a lot of authority over your estate planning. It will not be suitable for every situation, but it is a commonly used option for specially large estates.
Benefits of a Generation Skipping Trust
A generation-skipping trust in Arizona has plenty of upsides. If you are arranging your trust, this is something you should take the time to look into and discuss with your estate planning attorney.
It is a good idea to hire an attorney to help you do this. This way, you will understand exactly what you are looking at and what the details are. Estate tax and federal estate taxes can be challenge to understand.
These can be things that are difficult to understand if you don’t have any prior legal knowledge.
A big benefit to GST is being able to plan your legacy. General trusts that go to the children or the nearest family member aren’t always ideal for this.
The beneficiary might inherit your estate and not manage it correctly. This could result in it being lost before future generations are around.
Many people with large estates tend to use GST to preserve this inheritance. This ensures that the family legacy is preserved and around for at least a few generations.
Your children and your grandchildren will be able to benefit from this. In some cases, even your great-grandchildren may be able to use your inheritance and reduce the tax burden.
A GST trust holds assets, so they will not go directly to your children. Because of this, you may be able to skip one round of estate taxes.
These assets will only be legally taxed once they've gone to the beneficiaries. This allows your estate to only go through taxes once during the distribution.
If you were to have a standard trust, your children would have to pay taxes initially. If they were to pass the inheritance down to their children, they would have to pay again. The internal revenue service doesn't make it easy for the ones with substantial assets if proper estate plan is not taking into consideration.
Downsides of a Generation Skipping Trust
Now that you know the benefits of a generation-skipping trust, what are the downsides? It is important to understand both aspects before making a decision.
The reality is that there is no perfect option when it comes to planning your estate. You will have to choose the option that has the least downsides for your situation.
Cannot be Changed
The biggest downside to this trust is that it is irrevocable. It will not be available to be changed or canceled when it has been instituted.
Because of this, you will need to predict future situations. For instance, if you have a daughter who is married, you won’t want to include the husband in your trust.
There is a chance that they could get divorced in the future, and you would not be able to cut him out then. That is why it is important to put a lot of time into making this trust. You want to also make sure your children is protected from creditors and from themselves.
Most people choose to include only the people who will benefit the most. This includes the immediate family and the children primarily. Multiple generations are also included. Sometimes a blood relative is included as well.
Time and Effort
It is a good idea to work with an estate planning law firm in Arizona when creating this trust. It is very time intensive and requires some legal understanding.
Because it is irrevocable, you must get all of the details right. This is something you may not be able to do on your own, especially if you have a large estate.
It is also important to make sure your family understands what this trust is. You do not want to break family bonds by leaving someone out without their knowledge or understanding. To take advantage of generation skipping tax and reduce the administrative burden on your family you need to work with an experienced trust attorney to protect your trust assets.
Who Needs a Generation Skipping Trust?
The number one person who should use a generation-skipping trust in Arizona has a large estate. Those with smaller estates don’t typically need this kind of trust option. They are individuals that need to take advantage of estate taxes, federal estate tax exemption and generation skipping transfer tax. Generation skipping trusts are important to reduce your estate's exposure to taxes.
It is best for those who have a legacy that wants to preserve it for future generations. It is also good for those who have dependents who rely upon their inheritance.
Generation Skipping Trust in Arizona 101
You may be wondering about a generation-skipping trusts in Arizona? This is a trust that skips 1 to 2 generations before the assets are distributed to take advantage of estate taxes.
There are many ways to set this up to benefit your family the most.
Are you interested in getting a GST? Contact us today at Citadel Law Firm to schedule your free consultation. Our experienced estate planning attorneys are specialized in Trust and they can help you design generation skipping trusts for your family.
Call (480)565-8020 or click on the button below to schedule today. Our lawyers will be pleased to help.