What is generation-skipping life insurance planning?

Generation-skipping transfer (GST) planning involves transferring wealth directly to grandchildren or later generations, bypassing the intermediate generation (children) to avoid estate taxes on the same assets twice. Life insurance is a powerful tool for GST planning because it creates significant wealth efficiently.

The Generation-Skipping Transfer Tax (GSTT) applies to transfers exceeding the lifetime GST exemption (the same amount as the federal estate tax exemption, $13.61 million per person in 2024). Properly structured life insurance trusts can fund multi-generational wealth transfer within exemption limits.

A life insurance policy on a grandparent's life, owned by an irrevocable trust for the benefit of grandchildren and future generations, can create a multi-generational dynasty trust. When the grandparent passes, the trust receives the death benefit estate-tax-free, and the trustee manages the funds for generations of beneficiaries.

Dynasty trusts—trusts designed to last multiple generations—are particularly effective in Nevada, which allows trusts to exist for up to 365 years under current law, one of the most favorable trust perpetuity laws in the country. Coordinate with an estate attorney and licensed insurance agent for comprehensive GST planning.