Passing Assets to Grandchildren Through a Generation–Skipping Trust

While there are numerous ways in which one can pass assets to family members or following generations, a generation-skipping trust allows a beneficiary—or otherwise called a trustor or grantorthe ability to pass all assets onto the next generation by "skipping" the consecutive generation tax–free. This form of trust is most often utilized for relatives who are at least 37.5 years younger than you. They often include a beneficiary such as a friend, grand–child, or niece/nephew (excluding a spouse or ex-spouse).

Generation-Skipping Trusts and Esates

What is a Generation-Skipping Trust?

A generation-skipping trust is an established trust that names a beneficiary who has to be at least 37.5 years younger than the settlor. A generation-skipping trust can be established by a settlor, as part of a complete estate plan to reduce tax obligation. 

A settlor, for example, might leave an inheritance to a grandchild without ever transferring ownership of the assets to the child's parents. The assets flow tax–free to the recipient upon an individual’s death from the consecutive generation.

How a Generation-Skipping Trust Works

Generation-skipping trust laws provide precise requirements for who can be designated as the "skip person," according to the United States Code. According to these laws, the skip person, or beneficiary, must be “a natural person allocated to a generation 2 or more generations below the transferor's generation assignment.”

Three Things to Consider when Creating a Generation-Skipping Trust

  1. First, the federal GST exemption level was raised to $11.4 million in 2019 and $11.58 million in 2020, after being adjusted for inflation. This implies that you are eligible for a lifelong generation-skipping tax exemption on property transfers up to that amount. There are twelve states who additionally have their own inheritance tax, which applies to smaller estates in some cases. When someone leaves an estate to their child, who then leaves the estate to their offspring, the estate taxes are levied twice. One of these transactions and estate tax assessments is avoided by using a generation-skipping trust.
  2. As long as the original assets stay in the trust for the deceased person, there is no restriction prohibiting the following generation from obtaining earnings on assets. The trust can also be set up for them to obtain a voice in future beneficiaries' rights and interests. When your children pass away, the assets will transfer to the beneficiaries.
  3. It is not necessary for the recipient to be blood related. A generation-skipping trust solely requires that the trust is created for a beneficiary who is at least 37 1/2 years younger than the deceased individual.

Generation-Skipping Trust and Taxes

“Congress created the generation-skipping transfer (GST) tax and connected all three taxes [estate, gift, and generation-skipping transfer taxes] into a single estate and gift tax,” according to the Tax Policy Center, with the objective of eliminating the estate tax loophole.

Accordingly, by moving assets to the trust that falls under the exemption amount, the trust can be established to take advantage of the GST tax exemption. If the assets appreciate in value, the proceeds can be distributed to the trust's beneficiaries. Furthermore, because the trust is unchangeable, your estate will be free from paying GST even if the value of the assets exceeds the exemption limit. This is also true for any asset appreciation because all profits are transferred directly to beneficiaries. This means you will not have to pay the generation-skipping transfer tax if the value of the trust's assets totals to an amount exceeding the exemption maximum.

The estate tax exemption was increased through 2026 by the Tax Cuts and Jobs Act, which was passed into law in 2017. Because of the large barrier, most people will not be subject to the generation-skipping transfer tax. However, beneficiaries who receive assets in excess of the $11.58 million inflation-indexed exemption would be subject to a 40% top tax rate on the taxable amount.

Gift Tax

The individual gift tax for 2019 was $11.4 million. As a result, you and your spouse will be able to exchange $11.4 million over the course of your lives. Through 2025, the yearly lifetime gift tax exemption has been raised by the Tax Cuts and Jobs Act of 2017. The gift tax increased  to $11.58 million per person in 2020.

Determining Whether a Generation-Skipping Trust is Right For You

Since a generation-skipping trust is a complex legal structure, it is a good idea to think about it as soon as possible—preferably when you are starting to plan your retirement.

A generation-skipping trust is an excellent concept for capital preservation if you have a significant estate that is likely to be affected by the federal estate tax, and where, barring any catastrophic circumstances, your children will also have to pay the estate tax. It can also prove to be a sufficient resource in preserving your personal assets to those you wish to desire. Nonetheless, you must keep in mind that trusts are irreversible.

If you are in need of a highly qualified and experienced attorney for advice on how to build a trust, please contact the Law Office of Inna Fershteyn at (718) 333-2394 to have all of your authorization questions answered.

What Are a Senior Guardian’s Responsibilities?

Coming to terms with a loved one’s deteriorating mental health is never easy. However, if their mental health reaches a point where they are unable to make decisions, it may be necessary to look into obtaining guardianship of their care. A senior guardian is granted legal authority by a court to make decisions for their loved one who is no longer capable to do so themselves. An individual that a court decides is no longer able to care for themselves is called a ward. A senior guardian oversees a ward’s daily care or financial transactions, and sometimes both. If you are considering obtaining guardianship, it is important to become informed of both the required time commitment and emotional demands. It is crucial that you also understand the constraints this may place on your newly evolved relationship due to the necessary limitations placed on the ward’s independence.

Senior Guardian Responsibilities

Types of Guardianship and Guardian Responsibilities

When an individual is deemed mentally incompetent in a legal setting, they are named a ward of the state. A senior guardian, often a loved one, is then granted the power to oversee their care. Guardianship is divided into two categories that deal with different aspects of the individual's needs. The first category allows the guardian to oversee the ward’s daily care. On the other hand, the second category grants the guardian power to oversee the ward’s personal and home property. There are also instances in which the guardian is granted full oversight over both; this type of guardianship is known as full or plenary guardianship. This oversight may be granted to one guardian or split amongst two individuals according to daily care and property management. They then must work together closely when making important decisions concerning an overlap of the two.

Guardianship of the Person

Guardianship of the person administers oversight of the ward’s daily life: medical, residential, and social decisions. If appointed as a guardian that presides over these decisions, the responsibilities may include: 

  • Release of confidential information
  • Oversight of residence
  • Determination of residence location
  • Applying for government/medical benefits
  • Providing consent for medical treatments
  • Making end–of–life care decisions
  • Making sure their care is managed in the the least restrictive way possible
  • Reporting to court at least once a year

Guardianship of Property 

This guardian is also known as a guardian of the estate: someone who manages the ward’s finances and property. First, an appraisal of the ward’s income, assets, and debts, must be assessed. Then, the estimate must be filed with the court once a legal guardian is appointed. The guardian must always keep the ward’s funds in a separate account from their own and cannot allocate these assets/income toward their own needs.

A guardian of the property may have the following responsibilities for a ward:

  • Deciding how finances are handled;
  • Applying for and managing government benefits 
  • Making investment decisions;
  • Paying bills, rent, and taxes
  • Keeping detailed records of all income and expenditures;
  • Requesting prior court approval for the sale, donation, transfer or mortgage of their property
  • Reporting to court at least once a year with a complete account of finances

** Sometimes, when a guardian applies for and manages government benefits on behalf of another individual, a power of attorney is required. An elder law attorney can professionally and adequately prepare a power of attorney that proves a guardian has the legal right to act on behalf of another individual. A POA guarantees an agent the right to act on behalf of the principal. 

Accepting the Role of Guardian

There is no denying that accepting guardianship of a loved one is an extremely demanding emotional process and is time consuming. When a guardian obtains oversight of a ward, they are agreeing to surrender an individual’s independence to their care. This is difficult to come to terms with and often a rigorous process determining when to allow independence and when to place constraints on it. It is also important to understand that every case is unique and what may work for one ward/guardian relationship, may not work for another. A guardian agrees to take on the role of protecting their ward from abuse, exploitation, and neglect both from themselves and their environment. Before accepting this decisive role, it is important to voice your concerns with other family members. It is crucial that you are confident in your answers to two questions: Do I have the time and emotional strength to qualify for guardianship of this individual? Is there someone else I know that would be a better fit? Once you have the answers to these questions, it is important to obtain professional legal advice and elder law administration.

For all of your elder law planning needs, please contact the Law Office of Inna Fershteyn at (718) 333-2394 to receive help in obtaining guardianship.

How to Prepare a Loved One for the Possibility of Dementia?

Everything in life isn’t guaranteed and a life, where the best for you and your loved ones is not ensured, is scary. Having a plan for when those unexpected times arise in your life is the best way to ensure you and your loved ones are taken care of. Those approaching their elder years should be one of the first to ensure these plans are in place. Events such as an accident, stroke, heart attack, or something as serious as dementia can be extremely troublesome without the best plan in place. Not only should you consider making plans for your own well-being but encourage your loved ones to do so as well. This will ensure that a designated individual will be able to step in when times like this may occur in your life. 

How to Prepare a Loved One for the Possibility of Dementia?

Discussing Legal, Financial, and Health Care Planning With Loved Ones

Though having such a difficult conversation with the people you love may be uncomfortable, the end goal is for you and your family to ensure everyone is taken care of, no matter what obstacles life throws at you. If you wait until your loved one is incapacitated or needs a caregiver it will be extremely hard, legally and emotionally, to be able to care for them when they need you the most. If this occurs you would need to endure the lengthy and complex process of guardianship in order to be able to control a loved one’s medical care and finances. Why put you and your family through this process when you can make a plan beforehand. 

Timing Is Extremely Important 

Getting your Elder Care planning done in advance is crucial, as in order to be able to sign all the legal documents in the process, one must be physically and mentally able to. In instances such as Dementia, early diagnosis can still hinder an individual’s ability to make decisions. In some cases, a senior may still be able to sign legal documents but this all depends on the progression of the disease and circumstances differ. This actively demonstrates why it is important to plan earlier rather than later. Though it can be difficult to bring up these matters with a loved one, you should try to make it clear that you intend to protect them and ensure that all their assets and life are put in the best scenario possible. 

Crucial Documents Needed for Elder Care Planning 

  1. Last Will and Testament: A last will and testament is the first step in any Elder Care planning and indicates your wishes when you pass. This document indicates what is done with your assets and ensures your interests are met. We never know when we may pass and this document makes sure not only your interests are met but your loved ones are taken care of when this happens. 
  2. Durable Power of Attorney for Health Care: This is a document that will allow an individual to designate a person to make any medical decisions for them if they become incapacitated or unable to. Some decisions include choosing health care providers, nursing care, treatment, and end-of-life care. This document allows the individual to obtain medical records on your behalf as well. This is ideal for anyone as health can change, especially as you continue to get older, and this document will make sure you are taken care of if things don’t go as planned. Those with Dementia are not guaranteed a specific time frame for how fast the disease will progress so having a Health Care Power of Attorney will give them and their loved ones peace of mind when their loved one can no longer make decisions for themselves. 
  3. Durable Power of Attorney for Finances: This is a document similar to the Power of Attorney for Health Care, and allows you to designate an individual to make financial decisions for you when you become unable to do so for yourself. Some decisions that can be made on your behalf with this document include managing investments, selling property, taxes, and paying bills. This document is needed, as not only will your estate and assets be protected, but your interests will also be met if you ever become incapacitated. Why let a disease like Dementia or a medical condition stop your family from making sure your assets are taken care of when you can plan ahead. 
  4. Living Will: A living will is a healthcare directive that is drafted in advance to indicate an individual’s wish for end-of-life care or a serious medical crisis. This will be a clear indication of what you want to be done in regards to treatment if you are unable to and if the situation is life-ending. This document contains the instructions for the medical Power of Attorney and is important in the Elder Care planning process as leaving decisions like this to your loved ones will cause an immense amount of pain and regret. Your loved ones will not be left wondering what you would have wanted, but instead, know exactly what you want. 

Hiring an Elder Care Attorney 

Elder Care planning is hard on families and may not be the desired conversation, but it’s definitely a crucial step to ensuring your loved ones and you are taken care of at all times. Sitting down and creating a plan for what will happen in times of illness or losses is the start of your Elder Care planning. An Elder Care attorney can help make this process easier and ensure all your interests are met in a professional and legally binding manner. An attorney will inform you of all your options, and ensure all documents are legally binding and accurate. Discussing Elder Care options is hard enough for you and your family that’s why hiring an Elder Care attorney will allow you the peace of mind that your plans are in place in times of hardship. An attorney will help with the drafting of your Last will and testament, Power of Attorneys, and Living will, so you are ensured the best care. 

For further information on how to start your Elder Care planning please contact the Law Office of Inna Fershteyn at 718-333-2394 to obtain aid in the drafting of legal documents and help with any of your Elder Care needs.