Wealth Preservation, Trusts and Estates

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The Houses Passes A New 10 Year GRAT Requirement

On June 15th, the US House passed H.R. 5486 (a “jobs bill”) that contained a requirement that GRATS (Grantor Retained Annuity Trusts) be for a term of at least 10 years.

As readers know, we have been promoting and using GRATs for many clients as a way or moving large increases in wealth without triggering significant gift taxes.

GRATs are often used by clients with rapidly rising stock values, real estate, or other assets with a high probability of significant growth.

The government now views this technique as being just too good for the tax payer and is attempting to restrict it’s use to raise additional revenue.

The main purpose of H.R. 5486 is not, of course, to modify the GRAT rules. It is instead intended to create small business tax relief.

However, as mentioned, GRATs have proven to be a highly efficient technique for transferring wealth while minimizing gift taxes, provided that the grantor survives the GRAT term and the trust assets do not depreciate in value. And, taxpayers have become skilled at maximizing the benefit of this technique, by minimizing the term of the GRAT (thus reducing the risk of the grantor’s death during the GRAT term). Many clients use a term as short as two years.

Under the current bill, now also before the Senate, the minimum term would be ten years. This, of course increases the risk that the grantor might die during the term and the benefit to the family would be lost.

So, while the GRAT will remain a valuable planning tool. The days of the short term GRAT might be limited. If you find yourself moving toward a public offering, a land development plan or some other planning that might produce large value increases, be sure to consult your legal and tax advisers about all of your options in the face of this pending legislation and the appearance that it will pass both houses.

David Frees III, Esquire

David Frees writes on GRATs and other sophisticated estate planning techniques and actively helps affluent families and individuals in Pennsylvania to implement sophisticated estate and estate tax planning.

For more information on GRATs and related estate and asset protection planning call 610-933-8069. Law offices in Phoenixville, Malvern, and West Chester Pennsylvania.

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First a few preliminaries on the Grantor Retained Annuity Trust or GRAT.

What is a GRAT? GRAT stand for Grantor Retained Annuity Trust. It is a special trust where you can make a gift and get the original amount back over a period of years and the growth of the asset remains in the trust – usually, for children.

Why do people do GRATs? GRATs are often used in times of low interest rates, and low asset values to move substantial growth in an undervalued stock, family business, or even real estate, out to the next generation.

Can you give an example? Yes. Mrs Walton (Sam Walton’s wife) contributed a substantial amount of Walmart stock to a GRAt for her children. The trust had to pay her back the stock (or cash) plus interest over a peiod of years. However, because her stock rose so much in value, even when she was paid back, a great deal of wealth remained in the trust for her heirs. She paid no gift tax becasue the GRAT was structured, so that at the time of the transfer, there was no gift.

Should I get my GRAT done before the end of the year? Well, a GRAt is an irrevocable trust. So, you should thoroughly and completely understand the GRAT before you sign and fund it. However, in the current economic environment, a GRAT can be a very powerful estate planning tool.

GRAts are complicated to set up but once you go through the process, they are fairly easy to use and to administer and the payoff to your heirs can be huge.

Since you must out live the term of the GRAt for it to work it’s magic, careful consideration should be given to how fast the GRAT should pay you back. But, once you know that the GRAt is for you, the sooner you fund it the better.

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David M. Frees III on GRATS - Grantor Retained Annuity Trusts

David Frees’ AVVO Rating 9.8 “superb”

For a consultation or phone conference call 610-933-8069
By email: dfrees@utbf.com

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If you have accumulated any wealth during your lifetime, and you have the desire to pass all or part of that legacy on to your heirs, you have probably been reading quite a bit lately about the unique planning opportunities that exist today.

David M. Frees III on Estate Planning Dangers and Opportunities

And, it is true, that there are some conditions in the market place that have created unique and almost unparalleled opportunities to pass wealth to the next generation.

Historically low interest rates, real estate values, and temporary impairment in the value of otherwise strong family businesses mean that you can use a variety of techniques to pass stock, land, income producing assets, and interests in real estate to your heirs at a fraction of the long term value of those assets.

These conditions are not likely to continue, and there is a move afoot in Washington to eliminate some of these valid planning tools.

So planning now may be important. But, many people rush into these techniques without careful consideration of a number of important factors.

First and foremost, most of these techniques involve some aspect of irrevocability. It is therefore essential to review your current and long term cash flow needs to ensure that the gifting techniques will not impair your own security and lifestyle.

Care must also be taken to make sure that the technique or techniques used are the best match possible under all of the assumptions and current conditions. For example, should a GRAT be used? What happens if the trust is a grantor trust and you remain liable for the taxes? How does that impact your retirement cash flow?

The short version is that the time for action may be now and the need for speed is present. But, these techniques require you to carefully analyze your current estate, your cash flow and lifestyle needs, the risks of the marketplace and the best technique or combination of techniques for you under all circumsatnces.

David M Frees III is Chairman of the Trust, Estates and Wealth Preservation section of
Unruh, Turner, Burke and Frees

dfrees@utbf.com

His Avvo rating is “Superb” 9.5

For more information on estate planning, asset protection, protecting heirs
from divorce and litigation and related topics call Donna Brownback at 610-933-8069 for
an appointment or teleconference with David Frees

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More Reasons To Consider A GRAT Right Now

David M. Frees III, Esquire
610-933-8069
dfrees@utbf.com
www.paestateplanners.com

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Have you ever heard of a GRAT or a “Walton GRAT”? The Grantor Retained Annuity Trust is a powerful estate planning and asset protection technique that allows wealthy families and modestly wealthy families to move a great deal of value without incurring gift taxes at the time of the transfer. The GRAT also allows you to move assets out of your estate but to get some of the assets returned to you. This ability to gift and to use assets is very rare in the estate planning world.

The GRAT can be quite complicated and you will need to consult counsel. However, in the current environment where stocks, real estate, and business values are at historic lows, and, where interest rates are also low the GRAT is a tool that can really help families to protect and preserve assets for the next generation. In this brief video David Frees explains how it can work.

David M. Frees III, Esquire
dfrees@utbf.com
610-933-8069

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