U.S. Treasury would like to curb the use of GRATs for gift and estate planning
June 2, 2009

The Wall Street Journal reports that the U.S. Treasury would like to curb the use of grantor retained annuity trusts (“GRATs”) for gift and estate planning because of a perceived tax abuse. GRATs are irrevocable trusts to which an asset is transferred with retention of an income interest or use of the GRAT property for a term. At the end of the GRAT term, the assets are then transferred to the remaindermen and the income interest/use is ended. In order to qualify as a GRAT, the Internal Revenue Service says that a stated growth rate (the “AFR”) must be applied to the assets when calculating the taxable gift on the initial transfer. At this time AFR rates are very low. To the extent that the GRAT assets grow at a rate greater than the AFR, the excess value belongs to the remaindermen and is outside of the grantor's estate without gift or estate taxes. So where is the abuse? Frankly, it seems hard to believe that there is a tax abuse when GRATs are sanctioned by law and the IRS publishes the AFR. For now and with the AFR rates at historical lows, GRATs are a great technique to transfer wealth to the next generation.

If you have questions, please contact:
Charles B. Jones, Esquire

CJones@TandLLaw.com
(410) 752-2468