Grantor Retained Annuity Trusts at Risk

The status of grantor retained annuity trusts ("GRAT") is uncertain as a result of a bill that was recently passed by the House of Representatives.

According to Investment News, "the Small Business and Infrastructure Jobs Tax Act of 2010 would impose a 10 year minimum for estate planning vehicles and would bar "zeroed-out" GRATS."

Grantor retained annuity trusts are very efficient estate planning tools.  A person using a GRAT would first place some assets in a trust.  That person then takes back an annuity that is based on that asset value plus a variable interest rate.  Any appreciation above the level of the interest rate is passed along tax-free to heirs.

This all needs to take place before the grantor/annuity owner dies or the tax benefits are lost.  The new 10 year period would strike at this aspect.  In addition, the legislation would require that some asset value remains in the trust which also has tax implications.

Source: Investment News

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