What’s Left Unaddressed in 2013 – Part 1

25 Jan

tax-attorney-sdWith the passage of the American Taxpayer Relief Act, much of the focus has been spent digesting and discussing the estate and gift tax items that were made permanent by their inclusion in the Act.  What has gotten less attention are the estate planning issues that were not addressed in the Act despite rumors of limiting or eliminating some of these favorable estate planning tools.  Below is the first post of a multi-part series about some of the non-addressed topics that will likely garner more attention during 2013 due to the significant role they could play for estate and gift tax savings.


Grantor retained annuity trusts (GRATs):

Not all trusts are created equal.  While different types of trusts offer different benefits, some are designed for substantial estate and gift tax savings.  Grantor retained annuity trusts are designed for just that.  GRATs are a high powered tool used to help high net worth individuals save on estate and gift taxes.  Put simply, the creator (grantor) of the GRAT transfers assets into the trust and retains the right to a fixed annuity from the GRAT for a period of time determined by the grantor.  Once the time period has ended, the assets then pass to the grantor’s family, who are the beneficiaries of the GRAT.  This process removes the assets from the grantor’s estate and provides significant estate and gift tax savings.  The one catch is that the grantor must outlive the term of the GRAT or else the assets in the trust will be included in his or her estate, thus negating the potential benefit offered by the trust.  However, if done correctly, the grantor can transfer assets that are expected to appreciate into the GRAT, receive fixed payments for a specified term, and provide for his or her family while also realizing tax savings.


As 2013 was approaching, there were discussions that Congress would place a minimum time period on GRAT’s, meaning if an individual wanted to take advantage of this advantageous estate planning tool, they would have to select a term of at least 10 years.  A minimum term requirement would increase the likelihood of a grantor failing to outlive the term of the GRAT and destroying the potential tax benefits.  However, no such restriction was included in the Act, thus leaving an extremely useful tool in the estate planning attorney’s tool belt.  As a result, expect many high net worth individuals to take advantage of GRAT’s in 2013 while there is still the currently unrestricted rules placed upon them.


Revisit the blog in the upcoming weeks for discussion on some of the other topics left unaddressed by the Act that can provide tax savings for certain individuals and families.


This post is provided for informational purposes only and does not constitute legal advice.  It is intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results.  It is not intended to create an attorney-client relationship and is offered only for general informational and educational purposes.  You should not act or rely on any information contained in this website without first seeking the advice of an attorney.


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