Our update of March 29, 2010, summarized the usefulness of Grantor Retained
Annuity Trusts (GRATs) in estate planning, and reported action by the House of
Representatives to limit that usefulness by requiring all GRATs to have a
minimum term of 10 years. That House action went nowhere in the Senate, but the
idea is still around. It’s likely to be seriously considered in the current
flurry of “Lame Duck” congressional activity. It will be a part of the package
the Senate is expected to vote on tomorrow, and although the Senate is not
likely to approve the package, this is just one step in what is likely to become
an animated dance over the next couple of weeks.
Today’s lesson, as in our March
update, is that if it makes sense to create a GRAT, it shouldn’t be put off. So far, any legislation that restricts GRATs is
proposed to take effect when President Obama signs it, but that effective date
could be moved earlier as Congress strives to find revenue from any available
Meanwhile, for December 2010, the hurdle rate that defines a GRAT’s success
is lower than ever – 1.8%. That means that, on average, if the amount of the
annual income and growth of the assets transferred into a GRAT this month exceed
only 1.8% over the life of the GRAT, that excess will pass to the transferor’s
children (or other beneficiaries) free of gift tax – again suggesting that any
pending plans to create GRATs shouldn’t be put off.
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