Define: Generation Skipping

Generation skipping refers to a legal and financial strategy used in estate planning to transfer assets to beneficiaries who are two or more generations younger than the grantor. This technique is often employed to minimise estate taxes and preserve wealth for future generations. By bypassing the grantor’s children and transferring assets directly to grandchildren or more remote descendants, the assets can potentially avoid taxation at the children’s level, resulting in significant tax savings. However, there are complex rules and limitations governing generation-skipping transfers, including the generation-skipping transfer tax (GSTT), which imposes taxes on transfers exceeding certain exemption limits. Proper estate planning advice is essential to ensure compliance with applicable laws and maximize the benefits of generation skipping.

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This glossary post was last updated: 29th March 2024.