The Grantor Retained Annuity Trust (GRAT) has been an excellent and widely used federal estate tax savings tool. However, President Obama took aim at the GRAT in his 2011 budget proposals. Additionally, the House has included provisions targeting short-term and rolling GRAT planning tools in legislation that has passed at that level. Although that particular House legislation has not made it through Senate, there is a significant amount of discussion and proposed legislation in the Senate that would require a GRAT to be for a term no less than 10 years. This would not eliminate the GRAT as a planning tool, but would curb its use. Read this recent Forbes article that outlines how the GRAT is used, how it is being attacked and how it will be used into the future.
Keep in mind that it is likely that the Federal Estate Tax will return in 2011 and we will need every resource available to help limit what could be a tax in excess of 45% for every dollar over $1,000,000 in an estate. We encourage all clients and friends to keep their out for the final legislation of the federal estate tax system and to be ready to update estate plans accordingly.