How do generation-skipping trusts work?
There is a 55% generation-skipping tax on money left to grandkids. But the government gives each person a $1 million exemption. I suggest that married clients put $2 million into a generation-skipping trust. Q: When should you establish one? A: If you wait until you die to transfer the money, all you have given the grandkids is $1 million of future value. But if you give now, you will shield your $1 million contribution — plus any investment gains. Even though you can make your children beneficiaries of these trusts, don’t allow them to withdraw all the money. The power of this is that it can shield trust funds from gift and estate taxes forever. Q: What other kinds of trusts do you recommend? A: I suggest that my clients incorporate philanthropic giving into their plan. It is a way of giving children another legacy — a socially conscious legacy. You can set up a foundation and have the children run it. Even more creative is the charitable lead trust. Income goes to a charity for a p
