A low-risk tool to transfer wealth and help mitigate taxation is called a Grantor Retained Annuity Trust (GRAT).
GRATs have several advantages:
- they can eliminate gift tax liability on transfers to family members
- they have minimal legal and administrative costs
- grantors can exchange assets with the GRAT without income tax or capital gains consequences
- they are an IRS-sanctioned wealth transfer vehicle
- they can also aid in business succession plans
A GRAT is an irrevocable trust in which the grantor transfers assets in exchange for a fixed payment, or annuity, for a specific term of years. It can be as short as two years. The term is typically measured by a fixed number of years, but it may also be measured by the grantor’s life.
Only the grantor can receive annuity distributions during the annuity term. The annuity payments must be made at least annually. Upon completion of the annuity payment term, the GRAT’s remaining assets pass to the beneficiaries, either outright or in trust. No additional contributions to the trust are permitted.
For more information on GRATs and other asset protection/wealth transfer tools, please contact Monteforte Law, P.C. for a consultation in the Greater Wilmington, Massachusetts area.