If you have read articles in financial publications about estate tax savings tools for the wealthy, chances are you have seen the term grantor retained annuity trust (GRAT) floating around. A GRAT is a special kind of irrevocable trust designed to reduce the size of a taxable estate for estate tax and gift tax purposes. Many well-known Americans have utilized this tool, including Mark Zuckerburg, Ralph Lauren, and Lloyd Blankfein. If you have an estate valued at more than $5 million, you should consider meeting with an estate-planning attorney to discuss whether an update to your estate plan is appropriate.
While GRATs are becoming increasingly common, they are not the only technique that your lawyer can utilize to help you minimize the tax burden on your loved ones’ inheritance. Still, a GRAT may be advantageous under the following conditions:
- You have an estate valued at approximately $5 million or more.
- You own an easily transferable asset that is likely increase in value during the term.
- You have a reasonable expectation that you will outlive the term of the GRAT.
- You have a reasonable expectation that you will not need any of the gifted property later in your life in order to pay for living expenses or long-term care.
- You accept that further estate plan modifications may be necessary down the road as estate tax laws evolve.
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