Grantor Retained Annuity Trust Strategy Used to Perfection
One of the things that separates professionals from others is the fact that professionals have the right tools for the job and they know which tool to use depending on the situation. This is true of estate planning attorneys and it is one of the reasons why you would do well to obtain legal counsel when you are planning for the future.
A tool that can be utilized to great advantage if you have volatile securities that you would expect to appreciate in value is a grantor retained annuity trust.According to a piece that appeared in Forbes recently,the founders of Facebook Mark Zuckerberg and Dustin Moskovitz have utilized the zeroed out GRAT strategy to preserve some of their wealth.
To provide a brief explanation you fund the trust with appreciable securities and name a beneficiary.This is considered to be a taxable gift and a projection of anticipated interest is added to the taxable value of this gift by the IRS using 120% of the federal midterm rate.
When you create the trust you arrange for annuity payments to be made to you annually. “Zeroing out" the trust means that you do the math and have these annuity payments equal the entire taxable value of the trust.
If the anticipated interest that the IRS tacked on was accurate there would be nothing left in the trust to be passed on to your beneficiary. But if the assets outperform that estimate,something that Facebook shares prior to an IPO would certainly do,there will in fact be a remainder.This would become the property of your beneficiary and there would be no tax imposed on the transfer.
Zeroing out a grantor retained annuity trust can be a very useful course of action under certain circumstances.If you would like to learn more about this and other advanced estate planning techniques, simply take a moment to arrange for a consultation with an experienced and savvy South Carolina estate planning lawyer.
ABOUT THE AUTHOR: John Kuhn
Experienced estate planning attorneys Charleston NC of the Kuhn and Kuhn Law Firm offers estate planning and business planning resources to residents of Charleston, NC.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.