Grantor Retained Annuity Trust

Published on May 2016 | Categories: Types, Business/Law | Downloads: 31 | Comments: 0 | Views: 142
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In the never-ending quest to pass down assets without paying the often exorbitant estate taxes due on estate assets, a grantor retained annuity trust, or GRAT, can be an attractive option

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Grantor Retained Annuity Trust
In the never-ending quest to pass down assets without paying the often exorbitant estate taxes due on estate assets, a grantor retained annuity trust, or GRAT, can be an attractive option. Although a GRAT has very specific rules that must be adhered to in order to benefit from the trust, the benefits can be substantial. GRAT allows the donor to establish a trust funded with assets that will eventually be passed down to beneficiaries, similar to other trusts. The donor, however, retains an interest in the trust in the form of annual payments during the life of the trust. The interest retained by the donor is typically a percentage of the total assets used to fund the trust. At the end of the trust term, the remaining assets in the trust are passed down to the beneficiaries at a substantial savings in estate taxes if the trust operates correctly. Any gift tax due on the transfer is computed on the remainder interest at the time of the gift after subtracting the value of the income received by the donor during the life of the trust. A GRAT must be established for a specific duration, for example ten years. In the event the grantor dies during the term of the trust, all benefits that would have been gained by the trust are lost. If the grantor dies, all trust assets return to the grantor’s estate and are, therefore, subject to estate taxes. For this reason, deciding on the duration of the trust is very important. Generally speaking, the longer the duration of the trust, the more tax benefits gained by the trust, as long as the grantor, or donor, outlives the trust. Another important aspect of a GRAT is that the IRS sets an assumed rate of return that fluctuates each month. This rate is referred to as the Section 7520 rate after the IRS section where it is found. As long as the assets in the trust outperform the Section 7520 rate, the additional earnings are transferred tax-free. Deciding how to structure a GRAT can be extremely complicated, yet crucial in making the trust beneficial. Consultation with an experienced Atlanta estate planning attorney should be undertaken for anyone considering the creation of a GRAT. Experienced estate planning attorneys Atlanta GA of the Pyke & Associates P.C. offers estate planning and business planning resources to residents of Atlanta GA. To learn more about these free resources, please visit http://www.cpyke.com today.

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