Without second generation planning, if you leave assets outright to your children and they preserve those assets during their lives, there may be an estate tax on those assets upon their deaths. Your estate (or, the combined estate of you and your spouse) may already have paid estate taxes on those same assets when you died. Thus, that is basically a "double estate tax" on the same assets. Under current law, with second generation planning, an individual can shelter an aggregate amount of up to $13,990,000 (2025 amount), and a couple can shelter an aggregate amount up to $27,980,000 (2025 amount), from future estate taxes that would otherwise be due upon their assets upon the deaths of their children and grandchildren. This amount is called the "GST exemption."

This estate tax avoidance extends to the initial $13,990,000 (2025 amount) plus whatever that amount grows to during the lives of your children. Upon a child's death, assuming proper allocation of each spouse's GST exemption and proper administration of the child's trust, the full amount remaining in the child's trust will be distributed, estate tax free, to new Descendant's Trusts for the child's children. This preserves the GST exemption so that, on each grandchild's death, the trust assets pass estate tax free to the great-grandchildren.

In addition, since the typical Descendant's Trust has multiple beneficiaries (the primary beneficiary and all of his/her children and other descendants), there are multiple potential taxpayers with respect to paying income taxes on the income earned by the trust assets each year (i.e., more income tax options). The income tax liability basically follows the income. So, if the trustee distributes the trust income to one or more of the permissible beneficiaries of the trust, each beneficiary who receives a share of that year's trust income will pay income taxes on the share he/she received, in his/her own income tax bracket. Some of the beneficiaries could be in very low income tax brackets, especially compared to the trust itself, which must pay income taxes on the income it retains. And even if the trust only has one current beneficiary, there are still two potential income taxpayers, the trust itself and the beneficiary, so that the trust's income can be split between the two. When assets pass directly (outright) to beneficiaries, there are no income tax options–all income earned by the inherited assets will be taxable to the beneficiary as the owner of the assets.

Thus, with second generation planning, each generation has use of the trust assets during life and, usually, control over the disposition of the trust assets at death (through exercise of the power of appointment), yet those assets are protected from creditors' claims and spouses suing for a divorce, and are distributed estate tax free to the next generation (subject to the initial limits noted above). Plus, there are more income tax options.