GRATs in Estate Planning Under Current Tax Law: Structuring Considerations, Income, Gift, Estate and Generation-Skipping Transfer Tax Consequences

Opportunities and Challenges Presented by Low Interest Rates and Depressed Asset Values

Note: CPE credit is not offered on this program

Recording of a 90-minute CLE video webinar with Q&A

Conducted on Tuesday, February 9, 2021

Recorded event now available

or call 1-800-926-7926
Course Materials

This CLE course will offer a comprehensive guide to the structuring of grantor retained annuity trusts (GRATs) under current tax law. The panel will go beyond the basics to provide specific drafting tools to avoid potentially costly mistakes and maximize GRATs' benefits. The panel will discuss client circumstances that benefit most from GRATs, tax consequences, and opportunities and challenges presented by a downed economy and depressed asset values. The panel will also discuss sample language for relevant clauses such as self-correcting features, asset substitution powers, term selection, and other key components of a successful GRAT.

Description

A GRAT is an effective vehicle to transfer assets and property that will likely appreciate to heirs. When set up correctly, GRATs allow a taxpayer to transfer property to their children at a minimal tax cost, and also allow the underlying assets to continue to grow in value outside of the taxpayer’s estate. Estate planners must leverage the use of GRATs and ascertain key structuring techniques, but also make sure to overcome potential tax pitfalls.

Due to the pandemic, federal interest rates and certain asset values remain low, creating an opportunity to maximize the use of GRATs in estate planning. GRATs are irrevocable trusts typically structured with a short term, allowing for the low cost gifting of property expected to appreciate over that term. When the trust term ends, the remainder interest (after the initial value plus interest is paid back to the grantor of the trust) passes to the grantor's children. As long as the grantor survives the GRAT term, the amount that passes to the children is out of the grantor’s estate and no longer subject to estate tax.

Current low interest rates make GRATs particularly advantageous at this time.

Listen as our panel of experienced estate planning attorneys discusses best practices for maximizing the benefits of GRATs.

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Outline

  1. Structuring GRATs
    1. Regulatory and statutory requirements
    2. Impact of low interest rates and depressed assets
  2. Tax consequences for GRATs
    1. Gift tax implications
    2. Estate tax implications
    3. Generation-skipping transfer tax implications
    4. Income tax implications

Benefits

The panel will review these and other key issues:

  • What are the statutory and regulatory requirements for structuring GRATs?
  • How do the current interest rates and low asset values impact the viability of GRATs?
  • What are effective planning approaches for using GRATs?

Faculty

Cooper, Daniel
Daniel R. Cooper
Partner
Morgan, Lewis & Bockius

Mr. Cooper helps individuals and families develop plans for estate and gift taxes, family business succession, and...  |  Read More

Deringer, Ellen
Ellen J. Deringer
Of Counsel
Morgan, Lewis & Bockius

Ms. Deringer advises high-net-worth individuals on all aspects of estate planning, including federal income, estate,...  |  Read More

Pickering, Emily
Emily B. Pickering
Attorney
Morgan, Lewis & Bockius

Ms. Pickering represents individuals and families in planning related to estate and gift taxes, family business...  |  Read More

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