The value of the tax break a GRAT
can provide depends on the level of the official interest rate used to value the grantor's retained interest.
Additional benefits are achieved by using the GRAT
if the preferred return is greater than the Sec.
The IRS has argued that, upon the death of the grantor prior to the completion of the term, either the GRAT
corpus is includible in the estate of the grantor under IRC Section 2039 or a portion of it is includible under Section 2036.
And because the assets can remain in trust for short periods (two to three years is typically elected), the GRAT
carries reduced mortality risk.
With a QPRT, however, the asset you transfer must be a house (it can be a principal residence or a vacation home) and instead of receiving a flow of assets from the trust, as you do with a GRAT
, you receive the right to use the house during the trust term.
6 million in gift tax, and 2) committing the full $10 million to a program of rolling two-year GRATs
3) A "zeroed out" GRAT
occurs when the value of the grantor-retained annuity is essentially equal to the value of the asset transferred to the trust, resulting in a nominal gift or no gift because the remainder interest has virtually no value for gift tax purposes.
When the 7520 rate is lower, the annuity payments needed to zero out the GRAT
will be smaller and, thus, at the end of the annuity term, more assets will be available to pass to the ultimate beneficiaries gift tax-free.
A married couple with an estate in excess of the couple's combined unified credit equivalent can use a GRAT
, GRUT, or QPRT to eliminate or reduce taxes on the death of the second spouse to die.
If you are currently holding assets, such as stock that you anticipate will substantially appreciate in the future, and you wish to transfer some or all of this appreciation to family members in a tax-efficient manner, then you should contact your tax or legal advisor about establishing a GRAT
and other available gifting techniques.
In essence with both a GRAT
and a QPRT, "we're making a gift today that isn't going to take effect until the future," Longsworth says.
But, says Evelyn Capassakis, partner in charge of the trust and estates group at New York-based PricewaterhouseCoopers, "if you're older, you may not want to risk a GRAT
because it doesn't work unless you outlive your retained term.