Wills, Trusts & Estates Prof Blog

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

Tuesday, August 4, 2020

The Magic Hour For GRATs

GratIt has been tough to find many positives during the COVID-19 pandemic, however, Grantor Retained Annuity Trusts (GRATs) are one of them. GRATs allow donors to transfer income-producing assets into a trust and out of his or her estate, which will lower or eliminate an estate tax upon death of the grantor. 

Although the donor has to pay gift tax or use gift tax/estate tax exemption on the transferred property when the trust is created, the transferred property will appreciate at a rate that will eventually exceed the interest rate used to compute the value of the gift. 

The IRS sets the interest rate in Section 7520. You should check here to find the interest, which fluctuates on a monthly basis. The lower the rate, the greater the chance for tax savings. 

The reason why GRATs are a positive during the pandemic, is that the interest rates are currently very low, making the GRAT a perfect tool for saving. 

There are two main types of GRATs: a zeroed-out Gray and a non-zeroed-out GRAT. 

So, if you are interested in acquiring a GRAT, you should do some research to learn which one is best for you and your family. 

See, Lia Momtsios, The Magic Hour For GRATs, Mitchell, Silberberg, & Knupp, L.L.P., July 28, 2020.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

https://lawprofessors.typepad.com/trusts_estates_prof/2020/08/the-magic-hour-for-grats.html

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