A client is looking to establish an irrevocable trust that provides income to his spouse for life, then income to his children for life, with the remainder to grandchildren. This is an example of which?

A client is looking to establish an irrevocable trust that provides income to his spouse for life, then income to his children for life, with the remainder to grandchildren. This is an example of which?

• A. Crummey trust
• B. Generation-skipping trust
• C. Power of appointment marital deduction trust
• D. Grantor retained annuity trust

Answer: (B)

Generation-skipping transfer planning. The setup describes an irrevocable trust that pays income to the spouse for life, then to the children for life, with the remainder going to the grandchildren. The key idea is that the ultimate beneficiaries are a generation later than the generation holding the life interests—the wealth effectively skips the children to reach the grandchildren. This is exactly what a generation-skipping trust is used for, often with GST tax planning considerations to optimize transfers to grandchildren. The other trust types have different purposes—Crummey trusts hinge on annual gift exclusions, power-of-appointment marital deduction trusts involve the spouse and the marital deduction, and grantor retained annuity trusts rely on the grantor retaining an annuity—but they don’t describe a structure that routes the remainder to a later generation.

Generation-skipping transfer planning. The setup describes an irrevocable trust that pays income to the spouse for life, then to the children for life, with the remainder going to the grandchildren. The key idea is that the ultimate beneficiaries are a generation later than the generation holding the life interests—the wealth effectively skips the children to reach the grandchildren. This is exactly what a generation-skipping trust is used for, often with GST tax planning considerations to optimize transfers to grandchildren. The other trust types have different purposes—Crummey trusts hinge on annual gift exclusions, power-of-appointment marital deduction trusts involve the spouse and the marital deduction, and grantor retained annuity trusts rely on the grantor retaining an annuity—but they don’t describe a structure that routes the remainder to a later generation.