Grat Seminar
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The document discusses the Grantor Retained Annuity Trust (GRAT) as an estate planning tool that can be used to minimize estate taxes. Some key points: - A GRAT allows clients to leverage their lifetime gift tax exemption by gifting appreciated assets to beneficiaries while retaining an annuity, exempting any growth above the IRS rate from estate taxes. - GRATs are simple to set up and administer, safe as they follow IRS rules, and flexible in how beneficiaries receive inheritances and what types of assets can be used. - Traditional and "zeroed-out" GRATs are described, with the latter exempting all growth from taxes if returns exceed the IRS rate.
Grat Seminar
- 1. The Grantor Retained Annuity Trust (GRAT) By Ward J. Wilsey, JD, LLM
- 2. GRAT Excellent Estate Planning tool Minimizes Estate Taxes Leverages $1,000,000 Lifetime Gift Tax Exemption Can exempt appreciation from Estate Tax For clients with net worth above $10 million
- 3. Why GRAT Simple Safe Effective Flexible
- 4. Simple No income tax consequences No additional return, just an additional schedule Client may serve as trustee Only need to perform actions once per year
- 5. Safe Sanctioned by IRS code 2702 Follow the rules and no audit risk Long list of instructions from case law, regulations and PLRs
- 6. Effective All growth above the 7520 rate removed from estate If assets do not appreciate, you get them back, without penalty No risk
- 7. Flexible Can set how beneficiaries will receive inheritance Spouse can be beneficiary, and trustee of their own trust Any type of asset can go in a GRAT Complete autonomy over investments
- 8. How it works Client makes gift of assets into GRAT Client gets annuity for term of GRAT Minimum of 7520 rate At the end of the term, it passes to beneficiaries, free of tax Gift is the value of the remainder when the GRAT is formed
- 9. Traditional GRAT Client puts $1,000,000 of stock into GRAT Term is 20 years, at 7520 rate of 6.2% Invests for 12% return (client pays income taxes) Receives an annuity of $62,000 per year Present value of gift is $300,268 (reported on gift tax return)
- 10. Traditional GRAT results $5,178,041.66 removed from Estate and passes to beneficiaries $2,500,000 or so of estate tax savings
- 11. Downsides If you die, value of asset is brought back into estate Gift tax implications If assets do not appreciate above 7520 rate, there is no benefit All these downsides can be overcome with planning
- 12. Avoiding Inclusion Problem: You want to avoid having value of annuity included in estate if you die Use series of 2 year rolling GRATs, rather than 20 year Use crafty drafting to make sure only value of remaining annuity is placed back into your estate
- 13. Avoid Gift Tax Implications Problem: Client has used up gift tax exemption, cannot report taxable gift Set Annuity so high that remainder is 0
- 14. Zeroed Out GRAT Client puts $1,000,000 of stock into GRAT Term is 2 years, at 7520 rate of 6.2% Invests for 12% return (client pays income taxes) Receives an annuity of $546,956 per year Present value of gift is $0.35 (reported on gift tax return)
- 15. Result $94,853 still in trust All appreciation above the 7520 rate out of estate $3,827,218 of tax free wealth passed over 20 years
- 16. Zeroed Out GRAT Client puts $1,000,000 of Family LLC Interests into GRAT 33% Discount Term is 2 years, at 7520 rate of 6.2% Invests for 12% return (client pays income taxes) Receives an annuity of $355,521 (not the $546,956) per year Present value of gift is $0.22 (reported on gift tax return)
- 17. Result $289,000 still in trust All appreciation, and then some, out of estate $11,660,967 of tax free wealth passed over 20 years
- 18. The Family GRAT Apply the concept of the Family Gifting Trust (SLAT) to the GRAT Be very careful of the Reciprocal Trust Doctrine Fund in different years