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So if you're a grandparent who wants to leave assets to your grandchildren I'm afraid there's something you should know and that is even after you set up your living trust and plan to maximize your estate tax exemption you might have a whole other tax to worry about this tax is called the generation-skipping transfer tax, and it is imposed on transfers that skip a generation how can that be you ask well here's where things get quite complicated but without delving too deeply into this area of the law I'll just point out one problem with transfers across generations, and it's possible solution you see the estate tax is a tax that is imposed on each and every generation that means if your child's estate has already left relatively large your child is already going to use up his or her own estate tax exemption with his or her own assets if a grandparent gives their child even more assets in this situation then another round of tax will be owed on those assets as they pass from your child to your grandchildren, so it seems like there's no way out because if you give assets to your child who already has a lot of assets then there will be an increase of estate taxes to them and if you try to give assets directly to your grandchildren you could be subject to generation-skipping transfer taxes, but actually there is a solution because everyone has a lifetime exemption from generation-skipping transfer taxes much like the lifetime exemption from estate taxes, so grandparents sometimes wonder why not just skip the children and give the assets directly to the grandchildren and in the process use up their lifetime generation-skipping transfer tax exemption and indeed grandparents sometimes opt to give a portion of their estate to their grandchildren to avoid the estate taxes that would otherwise be imposed on those assets at the death of their children as a practical matter however grandparents usually want a way to make those assets available to their child during their lifetimes and when the child passes away they then want the assets to go to their grandchildren from this desire attorneys began crafting generation-skipping transfer tax trusts one type of generation-skipping transfer tax trust is a trust that is formed from your living trust after you pass away this trust is irrevocable, and it is controlled by your child manages its assets and decides when and how much of this trust to distribute for their own needs throughout the years the child then has the power at his or her own depth to decide how those assets are to be distributed among his or her own children although the explanation and examples given here extremely oversimplified one can begin to see that the use of a generation skipping transfer tax trust helps minimize estate taxes across generations to find out more please schedule a free appointment here at the trust or