What is it?

Estate Planning technique that minimizes taxes on large financial gifts to family members.

Who does it help?

Wealthy individuals that may face a significant estate tax at their death.

Example: People who own shares in a startup company.

Result:

At the end of the GRAT term the remaining financial gift plus appreciation is transferred to the beneficiaries.

How it works:

(1) Contribute assets to GRAT (cash, stock, partnership interests). Specify annuity term and annuity amount. Gift tax will be due on the difference, if any, between the value of the GRAT at funding and the value of settlor’s retained annuity interest (discounted using a discount rate published by the IRS).

(2) Each year, the GRAT pays the specified annuity amount to the grantor (amount can increase 20% each year).

(3) Assets held in the GRAT appreciate (depreciate).

(4) If the grantor survives the annuity term, at the expiration of the term, trust assets either go directly to remaining beneficiaries or remain in trust for their benefit, pursuant to the trust agreement. Funds pass to beneficiaries free of estate and gift tax.