Does transferring appreciated assets to the GRAT trigger an income tax liability?
Generally, a GRAT will be structured as a “grantor trust” for income tax purposes at least during the annuity term. A transfer of appreciated property to a grantor trust is not treated as a taxable event since the grantor is simply transferring property to himself/herself and not to an independent taxable entity. Moreover, depending on how the GRAT is structured, the grantor may continue to pay the GRAT’s income taxes without having such benefit treated as a taxable gift to the GRAT’s remainder beneficiaries. In summary, historically low interest rates create an opportunity to take advantage of this special estate planning vehicle. If properly structured, and assuming the property transferred appreciates at a rate in excess of the § 7520 rate at funding (3.8% for transfers which occur in June 2008), a GRAT could allow you to transfer a substantial portion of appreciating assets to your beneficiaries free of transfer taxes. As with all trusts, you will need to consider issues such as wh
