The federal government has set up estate tax laws that deplete an inheritance every time it is passed from one generation to the next. Caring.com explains that people in Massachusetts who want to avoid this double and triple taxation on their wealth may be able to ensure their grandchildren and great-grandchildren receive more of their inheritance by setting up a generation skipping trust.
Not only does a generation skipping trust keep more of the inheritance out of the hands of the government, it also prevents a child from losing the assets the parent intended for the grandchild.
Even the most well-meaning person may sink money into the wrong business venture, become overwhelmed with debt or go through a nasty divorce. In all of these situations, any personal assets could be tapped and depleted by bankruptcy, creditors or property division.
Remarriage is another threat to an inheritance. A divorced or widowed child may expect that, if he or she dies first, the new spouse will still ensure that the grandchildren receive the assets the grandparents intended for them. However, the new spouse is not legally bound to leave them the assets, and could decide to leave the original inheritance to his or her own family instead.
Benefitting both generations
InvestorGuide.com points out that a parent probably does not want to exclude a child in order to benefit a grandchild. The income generated by the assets in the generation skipping trust can be made available to the child throughout his or her lifetime.