Your Potential Estate Tax Problems Could Be Solved With a GRAT

Changes in U.S. federal estate and gift tax laws over the past few years have provided affluent families in Orange County and throughout the county with several opportunities to minimize their potential tax burden. One method that has gained widespread popularity is a grantor retained annuity trust, or GRAT. If you have a substantial estate that would result in a large estate tax bill after your death, now may be an excellent time to consider modifying your estate plan to take advantage of this tool.

What is a GRAT?

A GRAT is a special type of irrevocable trust that allows you to move a significant amount of your assets down to your children without paying estate or gift taxes.

How does it work?

In simplified terms, a GRAT works as follows:

  1. The creator of the trust transfers certain assets into the GRAT, retaining the right to receive an annual annuity payment for a specific number of years. When the term ends, the assets that remain are transferred to his children.
  2. By retaining the right to receive the annuity, the creator of the trust substantially reduces the value of the assets that were transferred into the trust for gift tax purposes.
  3. Once the term has ended and all annuity payments have been made, the remainder passes to the children without incurring additional gift tax.
  4. If the creator of the trust survives the annuity term, assets remaining in the trust are not subject to federal estate tax when he dies.

Is it right for you?

A GRAT is not right for every estate plan. The advantages of incorporating this or other tax savings techniques into your previously created estate plan will depend on many factors that are unique to your situation and goals. Fortunately, an experienced attorney can help you evaluate whether an estate plan modification is right for your family.

To learn more about how updates to your trust could save you taxes, call our office today at (714) 459-5481 for a consultation.