Grantor-Retained Annuity Trust Attorney

Grantor-Retained Annuity Trust (GRAT)

A GRAT (Grantor-Retained Annuity Trust) is an advanced estate planning practices and procedures that can help safeguard your wealth. One of these is the Grantor-Retained Annuity Trust, a financial instrument used to eliminate or minimize taxes on inheritable estates and assets. This kind of estate planning transcends the average and obvious tasks of will execution and living trust management to include estate/asset protection for many years.

What is a GRAT?

Grantor retained annuity trusts (GRATs) helps transfer assets to beneficiaries and heirs with little or no estate and gift tax responsibilities. When you channel your wealth into a GRAT, you freeze its value while conveying future appreciation to your heirs free of tax.

How GRAT works

You (the grantor) contribute assets to the trust over a specified number of years. Within that period, you’ll have the right to receive the value contributed even as you earn a rate of return per the IRS 7520 rate. Upon expiry of the GRAT term, the remainder of the assets plus appreciated value get transferred to your beneficiaries and heirs.

GRATs Pros and Cons

Estate and gift tax reduction

You can decrease or altogether remove inheritance tax responsibilities for your loved ones and worthy causes by channeling assets into the irrevocable trust for future transfer to them when you breathe your last.

If it were a basic revocable trust, it would safeguard your estate from probate. Yet, the Internal Revenue Service assumes that you still own the resources you placed into such a Trust. You remain in control, but everything in the trust remains taxable.

For an advanced irrevocable trust, placing your assets into it is a lasting choice. You’re giving up possession of your assets to a trustee. For the legal reason that you don’t control the assets and don’t own them, they get transferred to your beneficiaries free of tax obligations.

You can use a GRAT for the whole of your estate or just a few assets. Those assets appreciate tax-free. The interest, capital gains, and dividends increase the remainder passed on to those you care about. Before the expiry of the GRAT period, the income you receive from it is not taxable.

Self-perpetuating

You can set up other forms of advanced trusts to make a continuous contribution for people in the future too. Numerous states permit trusts to continue for many centuries, so you can rest at ease knowing that current family members and their families to come will be well taken care of.

Likewise, you can make a GRANT for a charity in your community to ensure that they are gifted from your estate for many years to come.

Protect your wealth

Even if you are not staggering rich, the dread of losing it all in a lawsuit can be a significant concern. Accidents do happen, and some lines of work are more prone to lawsuits.

An advanced trust such as the lifetime access trust (SLAT) simultaneously eliminates estate taxes while securing your assets against lawsuits. This is an irrevocable trust, just like the GRAT. When you channel your assets into the SLAT, you technically do not legally own them. So they remain inaccessible for those seeking personal injury compensation or divorce settlement from you.

GRAT and similar irrevocable trusts are an excellent way of protecting assets from the taxman, creditors, and ex-partners to benefit heirs and beneficiaries. However, plan it such that the GRAT’s annuity term or other irrevocable trust expires before you slip away.  Find an estate attorney who considers themselves a GRAT attorney.

If you die before the term expires, the assets will be included with the rest of your estate for federal taxation. The fraction summed up for taxation will depend on the 7520 rates at the time you pass.

GRATs are a powerful advanced estate planning instrument that is virtually risk-free.

If you have a considerably large estate that falls within the estate tax threshold when you die, consider a GRAT now to protect your wealth.

When setting up a GRAT, you will need an experienced lawyer to design the plan beyond the last will or revocable living trust. A lawyer can help you get ready for all inevitabilities and ensure your estate grows and is transferred to your loved ones tax-free when the time comes.