As an estate planning attorney, I am responsible for helping clients choose, create, and legally execute many different kinds of trusts. One example is a “Grantor Retained Annuity Trust”, or GRAT. A GRAT is a type of trust that confers a tax advantage to the recipient of the trust assets.
To establish a GRAT, the person establishing the trust (“grantor”) must create an irrevocable trust naming a certain term or period of time in which the trust will be active or valid. The grantor then pays any taxes due on the assets in the trust up front, when the trust is created. After that, an annuity based on interest on the assets, or on a percentage of their total value, is paid out from that trust every year to the named beneficiary or beneficiaries. When the designated term of the trust expires, the beneficiary will receive the assets that are contained in the trust tax-free. There are no gift taxes to be paid later.
Wow, you’re thinking…sounds terrific. How thoughtful to have taxes paid ahead of time…and by someone else. But there is, of course, another possible scenario with a GRAT. If the grantor dies before the trust period is over, the assets in the trust become part of the grantor’s estate. The trust beneficiary receives nothing, unless, of course, s/he is named (separately from the trust) in the grantor’s estate.
A GRAT can be used when, for instance, grandparents want to bestow financial benefits, such as the annuity offered by a GRAT, to grandchildren. Again, though, this particular kind of trust may not be ideal for everyone. Size of the estate and tax considerations are only a few factors to examine before creating any type of trust.
Of course, this is simply a broad overview, and nothing in this blog should be taken as legal advice. For specifics on a GRAT or trusts in general you should contact an attorney; preferably one with experience in the area in which you are seeking counsel. My practice centers on all aspects of estate planning, including trusts and wills. Let’s schedule a meeting to talk about your questions and your needs! Just give me a call at 818.956.9200.
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Glendale, CA 91207
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Sherman Oaks, CA 91403