Generation-Skipping Trust Law and Legal Definition

Generation Skipping Trusts are a type of irrevocable trust that is designed to eliminate estate taxes at each generational level and continue for as many generations as allowed by applicable state law.

Generation skipping trusts are legally binding trust agreements in which the contributed assets are passed down to the grantor's grandchildren, not the grantor's children. These trusts transfer assets to a skip person-a beneficiary more than one generation removed from the settlor. The children of the grantor never take title to the assets. The primary benefit of generation skipping trusts is the fact that the assets are not subject to two real estate tax assessments; one when the grandparents die, and one when the parents die. The other benefit of generation skipping trusts is that they are protected assets. While the children can sometimes access the income from generation skipping trusts, they do not own the assets, and therefore cannot lose them in a legal action. However this type of trust is subject to a generation-skipping transfer tax.

Generation skipping trusts are sometimes known as a dynasty trust since it is an attempt to pass assets down to later generations.