Newport Beach Estate Planning Attorney Says Now is Time to Protect Assets with a GRAT

8:34 pm Asset Protection, Estate Planning

time running out 150x150 Newport Beach Estate Planning Attorney Says Now is Time to Protect Assets with a GRATGrantor Retained Annuity Trusts – or GRATs – are a favored estate planning tool for transferring assets with little or no gift tax consequences.  A Newport Beach estate planning attorney warns that the time for setting up a GRAT is now, since the Obama administration’s 2013 budget proposal includes a provision that would greatly limit the flexibility and effectiveness of GRATs.

To establish a GRAT, the grantor sets up the trust to which assets are transferred for a retained annuity for the duration of the trust, which can (currently) be as short as two years.  GRATs have become increasingly popular over the past few years because of depressed asset values and low interest rates.

The assets placed into the trust are invested and whatever appreciation remains after the required annuity payments to the grantor are transferred to beneficiaries free of gift tax.  To be successful, the GRAT assets must appreciate faster than the IRS-required interest rate, which is set monthly and known as the 7520 rate.  The March rate is currently at 1.4 percent – a very low hurdle, which makes GRATs so attractive right now.  And even if the trust didn’t generate returns above this rate, there is no penalty – the trust assets are returned to the grantor as a final annuity payment at the end of the trust term.

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