You work(ed) hard to provide your family with a good life and accumulate the assets that you will pass down via your Florida estate plan. You likewise also have tried to teach your children the lessons of financial responsibility. But what if those lessons did not take with one of your kids? What if (s)he has shown that (s)he cannot handle money wisely? You may want to consider setting up a generation-skipping trust for his or her children instead of leaving your assets directly to him or her.
Per InvestorGuide.com, a generation-skipping trust can not only solve the problem of a financially irresponsible adult child, but also can save you considerable estate and gift taxes in the process. For instance, the generation-skipping transfer tax exemption allows you to gift $5.49 million ($11.2 million as a married couple) to your trust beneficiaries free of gift taxes. The federal estate tax exemption allows you to pass $5.49 million ($11.2 million as a married couple) to your heirs without having to pay estate taxes. And keep in mind that Florida imposes no estate tax on your estate.
Non-tax trust advantages
The advantages you gain by establishing a generation-skipping trust do not stop with tax savings, however. You can still provide for your financially irresponsible adult child in the trust by specifying that the income produced by the trust’s assets goes to him or her during his or her lifetime even though (s)he will never own those assets himself or herself. Instead, ownership of those assets ultimately goes to your grandchildren. Consequently, should your adult child divorce, his or her former spouse cannot benefit from the trust assets. Nor can any of the child’s creditors.
Actually, you can name someone other than your grandchildren as the beneficiary/ies of your generation-skipping trust. Only two beneficiary rules apply. A beneficiary cannot be your spouse or former spouse. In addition, (s)he must be at least 37-1/2 years younger than you.
This is general educational information and not intended to provide legal advice.
