Which trust is designed to have contributed assets pass down to the grantor's grandchildren rather than to the grantor's children?

Which trust is designed to have contributed assets pass down to the grantor's grandchildren rather than to the grantor's children?

• A. Dynasty trust
• B. QTIP trust
• C. Generation-skipping trust
• D. Asset protection trust

Answer: (C)

Generation-skipping trusts are specifically designed to move wealth directly to the grantor’s grandchildren, effectively skipping the grantor’s children in the transfer chain for estate and generation-skipping transfer tax purposes. By funding such a trust, the grantor can allocate the GST tax exemption to assets that will benefit grandchildren (and potentially further generations) while minimizing taxes that would apply if the assets passed first to the children. A dynasty trust can benefit multiple generations as well, but its hallmark is longevity across generations rather than the explicit intent to skip a generation in the transfer. QTIP trusts and asset protection trusts serve different purposes—marital tax control for a surviving spouse, and creditor protection, respectively.—so they aren’t designed to specifically route assets to grandchildren instead of children.

Generation-skipping trusts are specifically designed to move wealth directly to the grantor’s grandchildren, effectively skipping the grantor’s children in the transfer chain for estate and generation-skipping transfer tax purposes. By funding such a trust, the grantor can allocate the GST tax exemption to assets that will benefit grandchildren (and potentially further generations) while minimizing taxes that would apply if the assets passed first to the children. A dynasty trust can benefit multiple generations as well, but its hallmark is longevity across generations rather than the explicit intent to skip a generation in the transfer. QTIP trusts and asset protection trusts serve different purposes—marital tax control for a surviving spouse, and creditor protection, respectively.—so they aren’t designed to specifically route assets to grandchildren instead of children.