Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, January 30, 2009

Bonds becoming a more popular GRAT funding source

BondsThe following excerpts are from Arden Dale, With Stocks Unsure, Bonds In GRATs, Wall St. J., Jan. 29, 2009:

Corporate bonds are making an unusual appearance in a popular form of wealth-transfer trust amid uncertainty over how other assets will fare in the coming year or two.

Low interest rates and slumping asset values have created an excellent environment for grantor-retained annuity trusts, commonly used to transfer wealth without paying gift tax. * * *

Bonds "rarely go into GRATs," but they are a more attractive bet now because they seem less uncertain than traditional equities and perhaps have a greater chance of outperforming a key interest rate * * *

Even as estate planners recommend GRATs and other gifting strategies, they are concerned about possible rule changes under the Obama administration that could take away some of their tax benefits.

For example, rules that let donors reduce taxes by discounting the value of assets in family limited partnerships and limited liability companies are widely expected to change. A new bill in Congress, H.R. 436: Certain Estate Tax Relief of 2009, would eliminate a method often used to reduce the worth of assets in FLPs and LLCs. An appraiser generally sets the value at a lower rate so that the gift will be reduced and less tax will be owed.

Special thanks to Patrick S. Sylvester (Attorney & Counselor at Law, Sylvester Law Firm, PC) for bringing this article to my attention.


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