GRITs, GRATs, and GRUTs offer a transfer tax break

Article Abstract:

Grantor retained income trusts (GRITs), the related qualified personal residence trusts (QPRTs), grantor retained annuity trusts (GRATs) and grantor retained unitrusts (GRUTs) are becoming popular vehicles for shifting wealth to younger generations at significantly lower gift and estate tax costs. Each one of these instruments employs irrevocable trusts where the grantor has the option to obtain defined annual payments from the trust for a particular period. At the end of the term interest, the right of the grantor in the trust is removed and the balance of the trust principal is allocated to the remainder persons of the trust. The disadvantage of using GRITs, QPRTs, GRATs and GRUTs is that, if the grantor dies before the term interest ends, the whole value or partial value of the assets held in the trust on the date of the grantor's death can be incorporated in the estate of the grantor under Sec. 2036(a).

Evaluation, Transfer taxes, Grantor trusts

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Grantor's reversion prevents gain on sales with trust

Article Abstract:

The IRS decided in Letter Ruling 9551018 that a grantor is not required to acknowledge gain on distributions of appreciated property from the trust in satisfaction of her annuity or on a sale between herself and the trust because she retained a reversion valued at greater than 5% of the initial value of a grantor retained annuity trust. The taxpayer ensured that there would not be a taxable sale if there was not enough income to support the annuity and it was paid by distribution of appreciated stock in satisfaction of the deficiency even if the annuity was placed at a high rate. Moreover, the taxpayer could buy back the shares at fair market value from the trusts to ensure a step-up basis in her estate for the shares without recognition of a gain. Lastly, if she died before her interest ended, an inclusion would be introduced in her estate.

Laws, regulations and rules, Estate planning, Reversion

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GRATs let grantor retain control and reduce transfer tax

Article Abstract:

A grantor retained annuity trust (GRAT) can be a highly valuable tool for grantors because it allows them to retain control over their asset and minimize transfer tax. In addition, a GRAT can provide donors with a comfortable income stream from the property over a period of years. In a GRAT transaction, the grantor transfers assets to an irrevocable trust and maintains an income interest in the property for a certain number of years. By the end of the trust term, the assets pass to the remainder beneficiaries, with the resulting value of the remainder interest considered a taxable gift. Only a few clients understand the value of GRATs. Education is therefore important to inform people of its role in maintaining a sound financial plan.

Usage, Trusts and trustees, Trustees, Trusts (Law), Gift tax

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