Tips From the Pros: Less Giddy About GRATsTips From the Pros: Less Giddy About GRATs

Grantor retained annuity trusts (GRATs) have been an indispensable component of the estate planner’s toolbox for over 30 years. Internal Revenue Code Section 2702¹ and Treasury Regulations Section 25.2702-3² set forth the essential framework for a GRAT. When the easy-to-follow GRAT recipe is implemented, and depending on prevailing interest rates, the total return generated by the property committed to the GRAT and whether the GRAT settlor survives the GRAT term, it’s possible for an individual to move vast amounts of wealth to others gift tax free and with very minimal erosion of the settlor’s estate and gift tax applicable credit amount.³

None of this is news to experienced estate planners. What may have escaped the notice of some, howe...