You spent decades building a farm, a business, or a retirement account that finally looks the way you hoped. Now you’re asking what a lot of Iowa grandparents ask us: should some of it go straight to the grandkids instead of stopping with my children first?
That question usually leads someone to a generation skipping trust. The name sounds like a loophole. It isn’t. Here’s what one does, why people use them, and what it takes to put one in place.
What a Generation-Skipping Trust Does
A generation-skipping trust holds assets for people at least two generations below you, which usually means grandchildren. Your children can often still benefit during their lifetimes, depending on how it’s written. What changes is where the assets eventually land and who controls the timing.
The IRS calls those eventual beneficiaries “skip persons.” Grandchildren and great-grandchildren qualify, as does an unrelated person more than 37½ years younger than you. It’s one of several jobs a trust can do inside an estate plan, and it’s built for a narrower purpose than most.
Why Would Someone Use a Generation-Skipping Trust?
There are various reasons a family might decide to establish a generation-skipping trust. Four come up most often:
- Divorce. Assets held in trust generally aren’t treated as marital property if a child’s or grandchild’s marriage ends.
- Creditors. A properly drafted trust can shield assets from claims against a beneficiary.
- Pacing. A lump sum at 22 rarely goes the way anyone hoped. A trust can release funds gradually or tie distributions to milestones like finishing school or buying a first home.
- Continuity. A farm or business stays whole instead of splintering across heirs who want different things.
Taxes are the fifth reason, and they apply to fewer people than most think. The federal exemption is high enough that only a small share of estates ever reach it, and Iowa repealed its inheritance tax for deaths on or after January 1, 2025, with no separate state estate tax. If your estate falls under the federal amount, control is usually the real motivation.
Is a Generation-Skipping Trust the Only Way to Leave Money to Grandchildren?
No, and it isn’t always the right one. You can name grandchildren directly in your will, list them on a retirement account or life insurance policy, fund a 529 for education, or open a custodial account that transfers to them at 18 or 21.
Those options cost less and take less work. They also hand over money with no conditions, at an age you don’t get to pick. A trust costs more to create and maintain, and what you get for that is control over timing, terms, and protection that the simpler tools don’t provide. Which approach fits depends on how much is involved and how much structure the situation calls for.
How Do You Establish a Generation-Skipping Trust?
The process follows a fairly consistent path:
- Take stock of what you own and how each asset is currently titled.
- Decide who benefits, at what ages, and under what conditions.
- Choose a trustee and a successor trustee. This is the decision people rush and later regret.
- Have the trust drafted to match Iowa law and your specific goals.
- Retitle assets into the trust.
That last step is where plans quietly fail. A signed document with nothing moved into it protects no one, and an unfunded trust is one of the gaps we see most often.
One more step worth adding: tell your children what you’re doing and why. Assets moving past a generation can feel like a judgment when it isn’t one, which is why talking through generational plans with your family prevents more conflict than most drafting ever will.
Key Takeaways
- A generation-skipping trust holds assets for grandchildren or others at least two generations below you.
- Most people use one for control, creditor protection, and continuity rather than taxes.
- Iowa repealed its inheritance tax as of January 1, 2025, and has no state estate tax.
- Wills, beneficiary designations, 529 plans, and custodial accounts are simpler alternatives with less control.
- Choosing the trustee and retitling assets matter as much as the document itself.
Planning Three Generations Out
Whether this fits depends on what you own, who you’re providing for, and what you want to happen 30 years from now. Pearson Bollman Law works with families across Iowa and Kansas on these decisions, and an attorney can review your situation and explain the options in plain terms. Request a consultation to learn more.