Do you have a financially successful child? We often recommend against leaving all of the inheritance for the successful child to them outright. Instead, it can be better for both your child and your grandchild to leave some or all of the child’s inheritance in a special “generation skipping” trust. We call such a arrangement a “Heritage Trust”.
Let’s review the provisions of a Heritage Trust, including the estate tax savings and other advantages:
This is particularly significant when you recognize that your child’s inheritance, if received outright from you, would be taxed again at his or her death on top of assets which he or she already owns. The applicable federal estate tax rate can reduce this inheritance by 40%.
If your child would invest all or most of his inheritance anyway, he can do so just as easily in this trust as he could in his own name, yet this trust offers significant tax savings and creditor protection.
A child cannot create this type of trust for his own benefit and achieve the same tax and other advantages. With this special trust, you can do something for your children that they cannot do for themselves.
As you can see, there may be several reasons why this special trust for the successful child could be of benefit to your children. This is true even if YOU do not have a taxable estate. This article is presented as an informational summary only and does not discuss all the specific drafting options or complete tax and other ramifications of heritage or generation skipping trusts. We urge you to discuss the ideas expressed in this article with your children, and a competent estate planning attorney.