The fact that a minimum term for grantor retained annuity trusts (GRATs) has been discussed in Congress but not become law — combined with low interest rates — may make it an ideal time to add short-term GRATs to your estate planning arsenal.
A GRAT consists of an annuity interest, retained by you, and a remainder interest that passes to your beneficiaries at the end of the trust term. The remainder interest’s value for gift tax purposes is calculated using an IRS-prescribed growth rate. If the GRAT outperforms that rate — which is easier to do in a low-interest-rate environment — the GRAT can transfer substantial wealth gift-tax-free.
If you die during the trust term, however, the assets will be included in your taxable estate. By using a series of short-term GRATs (two years, for example), you can capture the upside of market volatility but minimize mortality risk.
If short-term GRATs might be right for you (consult us for more information), consider deploying them soon in case lawmakers revive proposals that would reduce or eliminate their benefits. Please contact us for more information.