Fitchburg Estate Planning Attorney Discusses Grantor Retained
If you have spent a lifetime building up your estate, then you likely
don’t want to lose half of it to estate taxes upon your death.
Unfortunately, without careful estate planning, that can happen.
Although each estate is entitled to an exemption amount which is
subject to change, any estate assets above the exemption amount
will be subject to the typically high rate of estate taxes. Likewise,
each individual is allowed a lifetime exclusion amount before gifts
are subject to gift taxes, but again, once you have exceeded the
exclusion amount your gifts become taxable. One estate planning
tool that has gained in popularity recently is the grantor retained
annuity trust, or GRAT.
Like all trusts, a GRAT requires the grantor to name a trustee,
beneficiaries and designate assets to be used to fund the trust.
Unlike other trusts, however, the grantor retains an annuity interest
in the trust. The annuity interest can be a fixed amount or a
percentage of the value of the trust assets. The annuity is then paid
out to the grantor on an annual basis for the lifetime of the trust. A
GRAT must be created for a specific duration of years. At the
expiration of the trust, the remaining trust assets are transferred to
The tax benefits of a GRAT can be found in more than one way.
For gift tax purposes, the taxes due are determined by subtracting
the present value of the retained annuity from the value of the
assets contributed to the GRAT. Another advantage to a GRAT is
that the IRS determines what it refers to as the “assumed rate of
return” each month. Whenever the trust assets perform at a rate
higher than the assumed rate of return, the additional earnings are
transferred tax-free. Most importantly, assets that are transferred by
the use of a GRAT are assets that do not remain in the grantor’s
estate at death and are, therefore, not subject to estate taxes. An
important consideration, however, is that if the grantor does not
outlive the trust, all the trust assets revert to the grantor’s estate
and all benefits of the GRAT are lost.
The amount of savings achieved by the use of a GRAT depends on
many factors such as the assets used to fund the trust, the trust
duration and the annual annuity amount paid ot to the grantor.
Consult with your Fitchburg estate planning attorney to determine
is a GRAT is right for you.
Experienced estate planning attorneys Worcester MA of the Law
Offices of James A. Miller estate planning and business planning
resources to residents of Worcester MA. To learn more about these
free resources, please visit www.worcester-estate-planning.com/