In large estates, many wealthy grandparents leave everything to their children, and the children pay the estate taxes. Later, when these children die, estate taxes again have to be paid before assets can be given to their children. Having to pay estate taxes twice on assets can put a huge bite on the assets that are left to grandchildren. It is often much more efficient to give assets straight to the grandchildren. Assets that are given this way are only subject to estate taxes once. This strategy is often used when the estate is sufficiently large to provide adequately for the children, as well as the grandchildren.

Keep in mind that there is a $1 million dollar limit for generation skipping from each spouse. This means that a husband and wife together could give a total of $2 million dollars to grandchildren (each grandchild could get a fraction of this figure). If you exceed generation skipping limits, you are subject to a substantial generation skipping tax. Many Estate Planning experts find the best way to significantly increase the generation skipping limits is by leveraging up the amount of the gift with life insurance. Annual gifts given to grandchildren would also increase, over time, the amount that could be "skipped."

Additional Information on Estate Planning:

Estate Planning Overview
Irrevocable Life Insurance Trusts (ILITS)
Using Ownership and Beneficiary Designations
How to Get Existing Policies Out of my Estate
Can the Three-Year Rule be Avoided?
Second to Die Life (Survivorship) Insurance
Gifts - Overview
Leveraging Your Gifting Program
Grandchildren
Generation Skipping
Living Trusts
Credit Bypass Trust
Charitable Remainder Trusts
Avoid Capital Gains Income for life

Click Here to return to Life Insurance Main