818-784-8885 sshare@susanshare.com

Susan Share

In the immortal complaint of one of Jane Austen characters,“People always live forever when there’s an annuity to be paid them.”  From Sense and Sensibility, 1811. But you can enjoy substantial benefits from short-term annuities as well.

Since the early 1990’s, estate planners have implemented GRATs, Grantor Retained Annuity Trusts, for our wealthy clients as a means for passing appreciated assets onto your children or other beneficiaries, while minimizing or avoiding paying any transfer taxes.  You receive annual annuity payments over a specified term, and any remaining principal at the end of the term goes to thebeneficiary.  The condition is that the you must outlive the relatively brief term of the GRAT or else the principal is included in the your estate for estate tax purposes.

Immortality aside, short-term GRATs remain a particularly effective option while interest rates and asset values are low.  While a minimum ten-year term had been proposed and even expected by many as part of the new estate tax laws, the new legislation (TRA) did not mandate a longer term for GRATs, so the two-year GRATremains a viable option, at least for now.

New GRATs are appropriate for anyone with assets exceeding $5 million.  People with total assets valued less than $5 million who have already availed themselves of GRATplanning may like to roll their GRATs over into new short-term GRATs when the term ends, taking advantage of the fact that the work and expense has already been established.   The roll-over would shield the appreciation and protect the assets from the vicissitudes of future legislation. In addition, assets in the GRAT can be switched for other equivalent assets that may appreciate more rapidly.