Want to pay less in taxes? Save on inheritance tax by generation skipping.

Generation skipping enables you to leave part of your wealth directly to your grandchildren. This can be an attractive option when your children have enough money of the their own. Your grandchildren can then put their inheritance towards buying a home or starting a business. What’s more, they pay inheritance tax just once on what you leave them.

What is the benefit of skipping a generation in this way? In principle, your children inherit your assets first and in turn your grandchildren inherit their parents’ assets. Your children will be taxed on what they inherit from you. When your children inherit, they pay inheritance tax a first time. When they die, their children – your grandchildren – pay inheritance tax again on the entire estate.

Have you decided to leave part of your wealth directly to your grandchildren? If so, it’s advisable to make them a beneficiary in your will or under an investment-linked insurance plan (ILP), which combines life insurance cover with an investment component.

If you’re interested in going down the ILP route, there are three options:

• Single-premium ILPs (investing your funds in one lump sum)
• Regular-premium ILPs (spreading your investment on your grandchild’s behalf)
• Recurring single-premium ILPs (letting you make top-up investments)

Good to know: you retain control over your ILP until you die, so you can always change the beneficiary should you ever want to.