Boca Raton Trust Attorney
BOCA RATON TRUST ATTORNEYS HELPING FAMILIES ESTABLISH GRANTOR RETAINED ANNUITY TRUSTS (“GRATS”)
A Boca Raton trust lawyer at Ellis Law Group can provide you with experienced legal advice for establishing a Grantor Retained Annuity Trust (“GRAT”). Our legal professionals take the time to understand your individual needs, as well as those of your loved ones, and to help you make an informed decision. Contact us today to discuss all of your estate planning options and find out if establishing a GRAT makes sense for you.
WHAT IS A GRANTOR RETAINED ANNUITY TRUST (“GRAT”)?
A Grantor Retained Annuity Trust is a specific type of irrevocable trust that offers significant tax savings in many circumstances. A GRAT is generally created by transferring one or more high-yield assets into an irrevocable trust and retaining the right to an annuity interest for either: (i) a fixed term of years; or, (ii) for the shorter of a fixed term of years or the remainder of your lifetime. When the annuity period ends, the assets in the trust (including any assets accumulated through appreciation) are then distributed to the remainder beneficiaries in accordance with the terms of the trust.
WHAT ARE THE BENEFITS OF A GRANTOR RETAINED ANNUITY TRUST?
The primary benefit of incorporating a GRAT into your estate plan is that the Internal Revenue Service (IRS) assumes that the assets used to fund the trust will grow at the statutory rate specified in Section 7520 of the Internal Revenue Code (IRS). This rate is generally between two and four percent. Therefore, any appreciation of the assets in excess of this rate will pass to the trust’s beneficiaries free of estate and gift tax. If you were to pass away during the term of the GRAT, the value of the assets would be included in your estate and you would be in the same position before the use of the GRAT.
The benefits of using a Grantor Retained Annuity Trust can be magnified by funding the trust with assets that may be subject to valuation discounts under the IRC. This includes minority interests and interests in closely-held businesses, among others. When you engage our firm to represent you with regard to your estate plan, our attorneys will work with you to thoroughly examine your options and determine how to maximize the benefits of including a GRAT in your estate plan.
WHAT ARE THE LIMITATIONS OF A GRANTOR RETAINED ANNUITY TRUST?
Importantly, the benefits that come with establishing a GRAT also come with certain limitations. For example, when establishing and administering a GRAT, it is important to ensure strict compliance with the requirements of IRC Section 2702, as non-compliance can lead to financial penalties. Examples of issues that can lead to penalties under Section 2702 include:
- Non-timely payment of the annuity to the grantor;
- Making additional contributions to the GRAT after its initial funding;
- Increasing the annual annuity payment by more than the allowed percentage; and,
- Issuing impermissible forms of payment to the grantor.
Additionally, as an irrevocable trust, a GRAT does not offer the same planning flexibility as certain other estate planning tools, such as a revocable living trust. However, there are still various options for modifying irrevocable trusts under Florida law. When evaluating whether it makes sense for you to incorporate a GRAT into your estate plan, our attorneys will work with you to thoroughly examine all pertinent considerations and make sure you are confident in deciding whether establishing a GRAT is the right option for you.
SHOULD YOU INCORPORATE A GRAT INTO YOUR ESTATE PLAN?
How do you decide if a GRAT is the right tool to achieve your estate planning goals? Ultimately, there are a number of factors you need to consider, all of which are specific to your own personal family and financial circumstances.
Generally speaking, the potential to achieve significant tax savings is the driving factor behind most people’s decisions to form a GRAT. If you are considering estate planning options to reduce you and your family’s estate tax exposure, then forming a GRAT may be a fairly obvious choice. However, the limitations discussed above warrant consideration, and it is important to make sure you have a comprehensive understanding of how GRATs work, what mistakes can lead to penalties, and what establishing a GRAT means for your loved ones when it comes to the administration of your estate.
SPEAK WITH AN EXPERIENCED BOCA RATON TRUST LAWYER AT ELLIS LAW GROUP
The Boca Raton estate planning lawyers at Ellis Law Group have extensive experience advising individuals and couples regarding the use of Grantor Retained Annuity Trusts, and we aim to help our clients make the best decisions possible regarding the preservation of their wealth. When you choose our firm for your estate planning needs, we will review your individual circumstances and advise you on your legal options so you can gain a full understanding of GRATs and whether or not this type of trust is appropriate for achieving your estate planning goals.
If you would like more information about Grantor Retained Annuity Trusts and the alternatives that are available in Florida, we encourage you to get in touch. To speak with a Boca Raton trust attorney at Ellis Law Group today, call 561-475-3848 or contact us online now. We look forward to assisting you in any way we can.