Possible Effect of Proposed Changes to GRAT Laws

Yesterday I posted a blog about H.R. 4849, a bill introduced in the house last week that would make significant changes to grantor retained annuity trusts.  GRATs allow wealthy families to pass wealth while lowering estate and gift tax liabilities.

A recent Forbes article adds insight into the effect of the proposed changes of H.R. 4849:

• Requiring that the GRAT last at least ten years would increase the risk that the person setting up the GRAT will die during the GRAT term, which makes the GRAT less attractive for older clients.
• Requiring that the remainder interest in the GRAT have a value greater than zero increases gift tax liabilities for the person setting up the GRAT.

President Obama suggested reigning in on GRATs in his proposed budgets for 2010 and 2011, something Democrats may favor to fund tax cuts and spending.  The Joint Committee on Taxation estimates that reigning in on GRATs would generate $4.45 billion over ten years.

In the meantime, wealthy families considering a GRAT as a tax saving strategy may want to accelerate their plans.  

See Ashlea Ebeling, Goodbye GRATs?, Forbes, March 24, 2010.