Chicago Estate Planning and Grantor Retained Annuity Trusts (GRATs)

In a recent article, Laura Saunders points out the advantages to a Grantor Retained Annuity Trust (GRAT).

GRATs transfer asset appreciation from one taxpayer to others, virtually tax free, and the benefit can be huge.

A taxpayer can set up a GRAT with a set term of two years or longer and transfer assets to the trust before the assets’ values surge (such as shares of stock). Over the life of the trust, the person who put the trust in place receives annual payments adding up to the asset’s original value plus a return based on a fixed interest rate determined by the Internal Revenue Service. That rate is currently 1.6%.

If that asset increases in value, the growth is outside of the grantor’s estate. When the GRAT’s term ends, the asset goes to the beneficiary. The result is no gift or estate tax on the appreciation. And if the asset decreases in value by the end of the term, it is simply returned to the taxpayer.
Beneficiaries can be unborn children as well as future spouses and current friends and relatives.

Consult your estate planning attorney for further information.