GRATS, Sales to Grantor Trusts, Or Private Annuities – Which One is Best?
This article will compare three popular wealth transfer techniques that all produce potential estate tax savings by removing future appreciation from the transferor’s estate, but without generating significant taxable gifts. Because these techniques produce little, if any, taxable gifts, even those clients who anticipate estate tax repeal (or reform) should not be reluctant to use them. All three techniques also provide the transferor with an income stream for a fixed period. Finally, all three techniques take advantage of the actual rate of return on the transferred assets as compared to the assumed rate of return utilized by the IRS to value the transferred asset. Yet each technique has its advantages and disadvantages when compared to the others. Grantor Retained Annuity Trust (GRAT). In the typical GRAT, the grantor contributes income-producing assets (i.e., Subchapter S stock or an interest in an FLP or FLLC) to a trust and receives a fixed payment (the annuity) from the trust eac
