Estate Planning: Have You Considered a GRAT?

Interest rates play a critical role in most tax efficient wealth transfer strategies.  In today’s low interest environment, one of the most effective and efficient strategies is the Grantor Retained Annuity Trust (GRAT).

A GRAT is a trust in which a grantor makes an irrevocable contribution of assets to the trust.  Based on the trust terms (minimum is 2 years), the grantor receives annual annuity payments over a fixed number of years and at the end of the GRAT term, any remaining assets pass to the beneficiaries of the GRAT.

The gift tax ramification of the GRAT is favorable, and most GRATs are structured so that the taxable gift is close to zero.  This is accomplished by structuring the GRAT so that the present value of the annuity payments equals the value of the assets initially contributed to the GRAT.

While GRATs are not designed to add significant wealth to the grantor, they can be effectively used to transfer assets to beneficiaries without paying gift tax.

Any asset that is expected to appreciate over the life of a GRAT can work well in the structure.  These assets can include closely held business interests, publically traded securities (including Hirtle Callaghan Portfolios) and large single stock positions.

One of the most famous examples of how a GRAT can be used is through the trust Sheldon Adelson, the CEO of the Las Vegas Sands, set up.  The illustration linked below shows how just one of Mr. Adelson's GRATs was able to transfer approximately $500 million to his beneficiaries.  See illustration here.

Hirtle Callaghan has experience working with our clients to set up GRATs.  Please contact us to learn more about how we can help with your estate planning needs.

 

Alan E. Weissberger, Esquire

Alan is a Portfolio Manager with Hirtle Callaghan where he is primarily responsible for the financial, estate and tax planning for individual and institutional clients.  Prior to joining Hirtle Callaghan, Alan worked most recently for the law firm of Morgan Lewis and Bockius, LLP where he was an Associate in the Personal Law Practice Group.  Alan earned a B.S. (High Honors) in Accounting from The Pennsylvania State University and a J.D. (Magna Cum Laude) from the University of Pittsburgh School of Law.  Prior to attending law school, Alan served as a Senior Auditor at Deloitte & Touche where he successfully passed the Uniform CPA Examination.

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