A grantor retained annuity trust is an effective estate planning tool that has a number of advantages over other techniques. It allows the creator of a trust to receive annuity payments based on assets placed in the trust. The grantor retains his or her rights to the annuity for a certain period of time. After the fixed period passes, the grantor can give beneficiaries any leftover assets from the trust that appreciated in value during the specified time frame.
One of the main benefits to obtaining a GRAT is that the creator of the trust can receive a substantial tax discount on monetary gifts passed to beneficiaries. When the grantor transfers assets into the trust, those properties are calculated at their current values. The annuity the grantor receives is equal to the value of the assets placed into the GRAT. If the appreciation of the assets exceeds a specific value, any extra funds are passed on to the grantee free of tax.
If the grantor survives the full term of a GRAT, the appreciated value of the assets in that trust is eliminated from the grantor’s estate. This is an ideal way for an individual to protect his or her family from potential estate taxes that may be relevant in the future. Additionally, if the value of the trust assets depreciates throughout the life of the term, the holder of the trust will not feel any disastrous financial blows. This makes transferring funds to a GRAT virtually risk free.
Obtaining a GRAT can safeguard an individual from legal issues regarding assets as well. If a family member, creditor or former spouse attempts to contest the distribution of properties, a GRAT will protect the grantor’s rights to those properties. A GRAT creator may also unify his or her assets with this type of trust. This saves significantly on administrative costs, particularly if the grantor has properties in two or more states.
Using a grantor retained annuity trust as a financial planning tool is a cost-effective way to protect an estate. Not only does a GRAT free the grantor from making high tax payments, it safeguards funds against the common glitches that occur in estate planning. Anyone with the appropriate types of assets can benefit from transferring funds to a GRAT. Because this type of trust is irrevocable, it is a virtually stress-free way to pass monies onto future generations.
The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation.
This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.