Generation Skipping Trusts

An important concept in Estate & Succession Planning

A Generation Skipping Trust is the stated desire of a grandparent to secure the future of his/her grandchildren. It is a legal entity in form of a private trust, setup by the senior generation.
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The term “Generation Skipping” is self-defining. An individual who has substantial assets that are expected to appreciate and wishes to make gifts or bequests to grandchildren and subsequent generations. In other words, a Generation Skipping Trust is the stated desire of a grandparent to secure the future of his/her grandchildren. It is a legal entity in form of a private trust, setup by the senior generation. The movable and immovable assets are passed down to the settlor’s grandchildren and not his children. In this case, the settler is the grandparent who sets up the trust.

Generation Skipping Trust effectively transfers assets from the settlor’s estate to the grandchildren. As a result, the children of the settler never take title to the assets, and skip the opportunity to receive the assets. Benefits are instead by their children (the grandchildren of the settlor). This does not mean that the settlor’s children are left out completely. The income generated by the trust’s assets such as dividends, rent, interest, etc., can be benefitted by them through the beneficiaries as decided by the settler in the Trust Deed.

Such trusts are specifically designed to protect the family’s assets from generation to generation as they appreciate in value. There are examples of financial calamities such divorces, failed businesses, financial debt, etc. Such trusts come handy in certain unforeseen circumstances. As an example, if a settlor’s child divorces, the divorcing spouse might not be able to lay claim to the trust assets, since the ownership of the same was never in the child’s name. This assists in protecting family wealth from getting eroded in a divorce scenario. The same is applicable for scenarios like business or other litigation.

Needless to mention, it is an effective and efficient family tool for wealth preservation and wealth transfer for individuals with assets and savings. Such trusts assist in preserving control for the senior family members, provide for effective management, maintaining maximum flexibility to reach to changing family needs, economic situations as well as other legal amendments.

Worth pondering on..