Albuquerque Generation Skipping Trust Lawyer

A generation-skipping trust can preserve generation-skipping transfer tax exemptions while also potentially avoiding taxes on asset growth.

Substantially wealthy families may be concerned about exceeding their lifetime exemptions for generation-skipping transfer taxes (sometimes called GST taxes or GSTTs). The risk is especially high if they want to leave sizeable assets to grandchildren or other young beneficiaries when they die.

An Albuquerque generation-skipping trust could allow you to avoid substantial estate tax amounts if you are in danger of going over your lifetime exemption. While beneficiaries are still responsible for paying taxes on trust distributions they receive, a carefully crafted trust arrangement can avoid most or all of the separate transfer tax.

Speak to an Albuquerque generation-skipping trust lawyer to learn more about your options and opportunities for giving your heirs significant tax savings. Schedule a no-obligation consultation and estate plan review with New Mexico Financial & Family Law today when you call us at (505) 503-1637 or contact us online.

What to Know Before You Meet With an Albuquerque Generation Skipping Trust Attorney

Hiring an attorney can provide measurable benefits for anyone looking to create a trust, especially one like an irrevocable one, like a generation-skipping trust. You will want to ensure that your trust is capable of delivering on your intended objectives with minimal risks.

You also want to be well prepared for major decisions and obligations, such as selecting a trustee and anticipating the trust’s income taxes.

Before you meet with an Albuquerque generation-skipping trust attorney, be prepared to consider questions like the following:

• What is the total value of assets that you intend to put into the trust? What types of assets will be used? Common examples include savings accounts, life insurance policies, brokerage accounts, and real estate.
• Who are the intended recipients of the trust? Are they all “skip persons” (i.e., grandchildren and other parties born at least 37.5 years after you)? Or will the trust have a mixture of skip and non-skip beneficiaries?
• Do you intend to combine your generation-skipping trust with another trust structure? For example, will it also be a charitable remainder trust or a bypass trust? Alternatively, do you intend to create multiple trusts with different structures?
• Do you want to fund the trust during your life (an inter vivos or “living” trust) or at the time of your death (a testamentary trust)? Or would you like to create the trust now and transfer more assets into it upon your death?
• What person or professional service provider did you have in mind to serve as a trustee? Would you prefer it to be someone you know personally or someone who is a professional services provider, such as a bank, an accounting firm, or a law office?
• Do you intend to give your trustee sole discretion over when and how to make distributions? If so, what ascertainable standards do you intend to provide to guide their decisions?
• In cases where your trust outlasts your own lifespan (which is likely with a generation-skipping trust), do you intend to stretch the distribution of the trust’s assets out over a certain number of years? Or would you like it to pay out its full contents to beneficiaries as soon as possible after your death?
• How would the generation-skipping trust interact with the rest of your estate at the time of your death? Would you want your estate to “pour over” completely into the trust? Or would you rather leave some assets outside of the trust?
• Do you want to use the trust to potentially provide a surviving spouse with supportive income? If that is the case, would you want them to be able to access some of the trust’s principal amount in a financial emergency?
• Would you want to form your trust in New Mexico or in a different jurisdiction that offers certain statutory powers, such as asset protection or extended longevity?

Know that you don’t have to have a solid answer to all — or any — of these questions prior to your appointment with an Albuquerque generation-skipping trust attorney. Instead, you should merely consider how you might answer.

You should also be ready to provide general information on the assets you might place in the trust. Bring any documents you can that describe your current estate plans or other important legal arrangements.

When you review all of this information with your Albuquerque generation-skipping trust lawyer at New Mexico Financial & Family Law, they can be better equipped to make a recommendation on how to structure your trust. With their help, you can ensure that you are able to build a lasting legacy — one capable of benefiting multiple generations of loved ones.

How Does a Generation-Skipping Trust Work?

Like all trusts, a generation-skipping trust has three main parties:

• A grantor (also sometimes called a settlor or trustor), who creates the trust and funds it with their assets
• A trustee, who is responsible for the management of the trust and making distributions to beneficiaries
• Beneficiaries, who receive distributions from trust income and/or the trust’s principal funding amount

In addition to these general trust arrangements, an Albuquerque generation-skipping trust will have a few unique aspects:

• The trust must be irrevocable, meaning that it cannot be significantly altered or changed once it is established (except, in some cases, by unanimous agreement of the beneficiaries, which may still sometimes require a court order and the consent of the trustee)
• When the grantor makes contributions to the trust, they elect to use some of their generation-skipping transfer tax exemption. The exempt amount, compared to the total amount contributed to the trust, determines the trust’s “inclusion ratio”

Who Is a “Skip Person”?

Simply put, a skip person refers to any beneficiary who is more than 37.5 years younger than the grantor. A generation-skipping trust can include both skip and non-skip parties as beneficiaries.

However, the grantor would want to exercise care in how they allocate their generation-skipping transfer tax exemptions for each contribution (more information on this below). Without careful consideration, they may end up overestimating the amount of GSTT exemptions they need to declare, wasting their exemption on a non-skip beneficiary.

Or, more likely, they may underestimate the amount a skip beneficiary might receive. For example, in the event a non-skip parent passes unexpectedly before they have received all of their distributions, their child — a skip person, and the grantor’s grandchild — may receive the remainder of their interest in the trust.

This situation could result in unplanned-for GST taxes.

Using Your Generation-Skipping Transfer Tax Exemption to Make a Trust Contribution

Every person has a lifetime exemption amount for transfers below fair market value they make to a non-charitable beneficiary — AKA, a gift. In 2025, the maximum exemption amount per person is $13.99 million.

This amount counts per spouse, so a couple would have up to $27.98 million exempted from any transfers during or after their lifetime. Transfers during the lifetime count as gifts, while those that occur after their passing are considered a transfer of their estate.

If one spouse has not fully used up their gift/estate tax exemption during their lifetime, then the other spouse is eligible to retain their remaining amount — a feature known as “portability.”

In addition, every individual has a generation-skipping transfer tax exemption. Importantly, there is no portability for this GSTT exemption amount.

So, once a spouse dies, if they did not elect to make a posthumous transfer through a will or trust, then the remainder of their GSTT exemption goes with them.

Fortunately, someone can “lock in” their GSTT exemption any time they make a contribution to a generation-skipping trust. They simply have to report the transfer on their gift tax return for that year and declare it as part of their GSTT exemption.

This capability is the key feature of an Albuquerque generation-skipping trust.

Naturally, every GST-exemption declaration someone makes deducts from their lifetime exemption amount, so the grantor will need to carefully track the total value of contributions to ensure they are not in danger of going over their total allowable exemptions.

How the Inclusion Ratio Works for a Generation-Skipping Trust

An Albuquerque generation-skipping trust’s inclusion ratio is one of its most important characteristics.

The ratio is established any time a contribution is made to the trust. It can range from 0.000 — meaning that it is fully excluded from any GST taxes — to 1.000, which means that 100% of the trust’s contents would be subject to a GST tax if a transfer were made to a “skip” person.

Transfers to any skip parties trigger a generation-skipping transfer tax at the time of the distribution, according to the rate dictated by the inclusion ratio. If the trust has a 1.000 inclusion ratio, then the beneficiary pays the full amount of the generation-skipping transfer tax.

If the inclusion ratio is zero, then the beneficiary receives their distribution free of any generation-skipping transfer tax. By extension, the beneficiary will owe 50% of the total assessable GSTT taxes if the inclusion ratio is 0.500.

Because a grantor wants to avoid over or underestimating the amount of GSTT exemption they should declare, a common practice is to set up multiple generation-skipping trusts for individual grandchildren — or groups of grandchildren who have the same parent.

How Are Generation-Skipping Transfer Taxes Usually Assessed?

A generation-skipping transfer tax applies in addition to any other appropriate taxes. They are assessed any time the source of a transfer was an individual born more than 37.5 years before the recipient (provided that the transfer was made below fair market value).

All non-exempt generation-skipping transfers are taxed at the highest estate tax rate, which is currently 40% as of 2025. As mentioned, this is in addition to any other possible taxes on income, capital gains, etc.

Taxable Events: Gifts, Trust Distributions, and Taxable Terminations

There are three main types of GST-taxable events:

1. Personal inter vivos transfers — Any gifts directly made by someone to a skip person, i.e., a grandchild or anyone else 37.5 years younger than they are.
2. Trust distributions — Distributions from a trust to a skip person, whether they were the intended recipient or a contingent (i.e., backup) beneficiary
3. Taxable terminations — A transfer of interest in a trust or other arrangement that happens when another party is suddenly ineligible to receive it, such as when a child of the grantor dies and unexpectedly needs to leave the remainder of their interest to their own child (i.e., the grantor’s grandchild)

When a taxable event occurs, the beneficiary is solely responsible for paying all applicable taxes, including a generation-skipping transfer tax. The amount of GSTT they pay for a trust-related taxable event is affected by the trust’s inclusion ratio, however.

GSTT is assessed on the total value of the distribution, too. So, if a generation-skipping trust maintains a 0.000 inclusion ratio, then a beneficiary does not owe any GSTT even if the value of the original trust contribution has appreciated beyond the grantor’s lifetime exemption amount.

Also note that beneficiaries are still responsible for paying taxes at the appropriate rate on income or capital gains generated from the trust principal, even if they are able to avoid the added GST tax.

The IRS does allow for blanket exemptions to GSTT for certain qualifying educational or medical expenses, provided that the trust distribution is released directly to the healthcare provider or educational institution.

Example of a Large Transfer to a Grandchild Without vs. With an Albuquerque Generation-Skipping Trust

Let’s use a somewhat simple example: Samantha, a widow, dies this year and leaves behind $24 million to her sole heir, a beloved grandchild named Jenny, without declaring any of her generation-skipping transfer tax exemption.

Because her deceased grandfather had $12 million of his lifetime estate tax exemption remaining, Jenny receives the entire transfer estate-tax-free, thanks to her grandmother’s $13.99 million exemption and her grandfather’s ample remaining amount, which applies thanks to portability.

However, GST taxes apply on top of estate taxes. There’s an excess of nearly $10 million beyond Samantha’s maximum available GSTT exemption.

Jenny will now owe a 40% transfer tax on that excess, trimming her inheritance by a sizeable $4 million.

If Samantha’s husband had instead placed some of his estate in a generation-skipping tax, he could have preserved some of his own GSTT exemption and avoided this situation.

Worth mentioning, too, is that if the grandfather declared 100% of the trust contributions as falling under his GSTT exemption, then Jenny would still inherit it all free of GSTT, even if the value of the interest appreciated quite a bit! That’s because the inclusion ratio applies to all taxable distributions, regardless of whether the distribution comes from income/capital gains or the principal.

So if the grandfather had placed $10 million in a generation-skipping trust and it appreciated to $13 million, Jenny still owes $0 in estate or generation-skipping transfer taxes.

Can a Generation-Skipping Transfer Exemption Apply Retroactively or Automatically?

In some cases, the IRS may recognize a contribution as deducting from an individual’s generation-skipping transfer tax exemption, even if the contributor failed to do so. In the example above of a sole heir, it may be possible for this adjustment to be allowed since there were no other parties involved to otherwise complicate matters.

However, one should never assume that the IRS or any other party will go out of their way to avoid assessing a tax, especially when the contribution event happened many years ago. It is always better to plan ahead and declare GSTTs intentionally as part of a strategic estate plan.

Annual Exclusion Amounts and Crummey Trusts

Another element worth mentioning is that every individual has an annual gift and generation-skipping tax exclusion amount that does not deduct from their lifetime exemption. Families can use this annual exclusion to make contributions to a Crummey trust, which could allow assets to appreciate if the beneficiary chooses not to exercise their right to take an immediate withdrawal.

Talk to an Albuquerque generation-skipping attorney to discuss this option and others in detail, helping you decide on the best trust arrangement for your family.

Schedule a Consultation With an Experienced Albuquerque Generation Skipping Trust Law Firm

Generation-skipping transfer taxes can be hefty, both from a financial and conceptual sense. Since they are added on top of any other taxes, figuring out what could be owed — and how to avoid it — could get complicated quickly.

Talk to an attorney at our experienced Albuquerque trust law firm to sort it all out in ways that are easy to grasp. We’ll help you understand the scenarios you could face and recommend a personalized trust and estate plan strategy based on who you want to inherit your legacy and how much it could add up to.

Get started planning for the future of your grandchildren — and other generations to come — when you call New Mexico Financial & Family Law at (505) 503-1637 or contact us online to schedule a no-obligation case review.