Exceptional Lawyers. Exceptional Results.

Our full-service Arizona law firm helps individuals and families cope with complex legal matters involving estate planning, wills and trusts, probate, personal injury, family law, and business law.

Tap to Call
Directions

Generation-Skipping Trusts in Arizona

Generation-Skipping Trusts

Do you want to keep wealth within your family but pass it directly to grandchildren or other designated beneficiaries? A generation-skipping trust (GST) may be an effective option to meet your goals, but only if it’s structured properly. If you miss a step, your loved ones could face tax penalties or lose access to important assets.

The Arizona trust and estate planning attorneys at Brown & Hobkirk, PLLC help clients create generation-skipping trusts that comply with both state and federal laws. We take the time to understand your financial and tax objectives and develop a comprehensive strategy tailored to your circumstances. Contact us today for a free consultation.

Why Work With Our Arizona Trust Attorneys?

Brown & Hobkirk, PLLC is here to help clients make proactive plans to safeguard their wealth, minimize tax burdens, and leave a lasting legacy for future generations. Our attorneys bring over 20 years of experience in trusts, wills, and estate planning to every case we handle. When you work with us, you get clear answers and personal attention from the start. We explain your options in plain language and listen closely to your priorities so your estate plan reflects your wishes and functions as intended.

Our experienced attorneys focus on compliance with Arizona and federal rules to help you avoid tax surprises and protect your assets. We offer flexible meeting options, including phone and video calls. If you want legal help from a team that puts your interests first, Brown & Hobkirk, PLLC is standing by to support you.

Understanding the Purpose Behind Generation-Skipping Trusts

A generation-skipping trust (GST) lets someone pass assets directly to their grandchildren or another person who is at least 37.5 years younger than them. The legal definition for this type of beneficiary is a skip person.

Many people use GSTs to keep their wealth in the family for many years. A GST skips the creator’s children as a way to avoid estate taxes that might apply twice — once when the children inherit and again when the grandchildren inherit. People who set up generation-skipping trusts can reduce how much of their family’s money goes to the Internal Revenue Service (IRS) for taxes.

In a generation-skipping trust, the children of the trustor are not entirely cut off from benefiting from the trust. However, they don’t officially own the assets. GSTs can also protect family money from lawsuits, divorce, and bad spending habits. Federal tax laws impose strict rules and limits on GSTs, so proper planning matters when you create this type of trust.

Who Should Consider a Generation-Skipping Trust in Arizona?

Generation-skipping trusts are an attractive option for many people with large estates. This includes those with assets worth more than the current federal estate tax exemption, which is periodically adjusted for inflation.

Business owners, real estate investors, and families with growing assets can also benefit from setting up GSTs. Parents who want to help their children financially but also want the money to stay with future generations often use GSTs to manage that goal.

Arizona does not collect a state estate tax, which makes GST planning a more straightforward process for residents. However, it’s wise to work with an experienced trust lawyer to minimize the impact of the generation-skipping transfer tax and avoid compliance problems down the road.

How Generation-Skipping Trusts Work

The Arizona Trust Code permits individuals to establish generation-skipping trusts, which adhere to the general rules governing irrevocable trusts. An irrevocable trust can stay in place for many generations, as long as the trust clearly states those terms. Since Arizona does not have an estate tax, the trustor only needs to follow federal GST tax rules.

To set up a GST, you must name a trustee, select beneficiaries, and comply with both Arizona law and federal regulations. The trust must have clear instructions and remain active until the terms allow for full distribution or change.

It’s also important to note that the IRS levies a 40 percent tax on GST transfers if the value goes over the current generation-skipping tax exemption amount.

Benefits of a Generation-Skipping Trust for Arizona Families

Key takeaways about the benefits of generation-skipping trusts:

  • They can preserve wealth for the long term.
  • By passing your wealth directly to your grandchildren or other qualified skip persons, you can potentially avoid estate taxes that would normally affect both your children’s and grandchildren’s shares. This strategy allows you to avoid double taxation over time.
  • GSTs can be structured to shield assets from lawsuits, divorce, and irresponsible spending.
  • Unlike a will, a trust can bypass probate, keeping your family’s finances private.
  • Arizona law permits long-term trusts, so families can plan for the future with fewer limits.

Potential Risks and Mistakes to Avoid

Costly mistakes can happen if a generation-skipping trust isn’t set up correctly. Examples include:

  • Failing to follow the rules that apply to other irrevocable trusts – If a GST does not meet these legal standards, the IRS may deny the tax exemption.
  • Losing track of how much of the GST exemption is already used – The error can result in unexpected tax liability.
  • Naming the wrong trustee – Trustees must follow strict rules and manage trusts carefully for years. Choosing someone who lacks the time or skills for the job can result in mismanagement or restrict access to trust funds for future beneficiaries.
  • Overlooking changes to tax laws – State and federal estate tax laws are constantly evolving, and trusts may require regular review to ensure compliance and avoid potential tax consequences.

With so many things to consider, it’s wise to work with an experienced trust lawyer who can help you set up a GST that works the way you intend.

Contact a Generation-Skipping Trust Lawyer in Arizona

Have questions about whether a generation-skipping trust is right for your situation? You don’t have to figure out complicated tax laws alone. The skilled generations-skipping trust attorneys at Brown & Hobkirk, PLLC can explain your options and help you build an estate plan that protects your family’s future. Call or contact us now to arrange your free consultation.