The time to protect your assets is now! While the estate tax may have lapsed this past year, many are convinced it will come back in full force in 2011. According to this Wall Street Journal article, Congress is now attempting to place limits on a type of trust (called a GRAT) that many families use to avoid the tax. A GRAT (grantor-retained annuity trust) allows the trust creator to allocate a portion of an asset’s future profits (e.g. a small business, real estate, or other money-generating assets) to heirs tax-free. This kind of trust is the perfect way to ensure that any assets with profit potential will be protected.
This type of trust is most productive in an economic climate just like the one we are living in now – low interest rates and depressed asset values. Because of this, and because Congress is trying to impose guidelines that impeded their success, right now is the time to set up your GRAT. Working with an estate planning attorney as soon as possible will ensure that you will benefit the most from your future GRAT.
According to the article, Congress is attempting to impose restrictions on GRATS to raise revenue. The restrictions could take the form of an increased time limit on the trust’s lifespan (making them much less useful for people with shorter life expectancies and less profitable to investors) or a higher percentage rate on minimum interest paid to the GRAT funder.
So with GRATs staying as they are for an uncertain time frame, estate planners are urging their clients with assets to take advantage of a GRAT before next year’s estate tax return. As for now, until Congress acts, clients can still have short term, low interest GRATs.
To learn more about grantor-retained annuity trusts, set up a free consultation with Estate Planning Attorney Adam J. Tobin.