Planning for an Inheritance

A generation-skipping trust can also be used when a client "looks upstream" at what he may inherit from his parents. For example, a surgeon who has a lot of liability risk may want the parents to put the funds he'll inherit into a generation-skipping trust. That way the inherited assets are available to him, but the inheritance itself is protected from creditors and can be passed down to the grandchildren without gift or estate tax. "This is like putting the assets in a tax-free insurance wrapper," says Feldman. "Any clients who have even moderate wealth might consider having their parents transfer their inheritance into a generation-skipping trust."

So even a family with $1 million in home equity and a retirement plan might consider a generation-skipping trust. "This is very straightforward, vanilla-type estate planning," says attorney Philip Feldman. Consult your trusts and estates attorney on the details, as some drafting nuances must be addressed, and state laws vary on specific aspects of these trusts.