Because of that risk, GRATs typically are set up with shorter terms, such as two years.
But the proposed budget would require GRATs to have a minimum term of 10 years.
For a guide to giving, the tax-free way, including more on GRATs, click here.
You would no longer be able to use short-term GRATs to minimize that risk.
And, for now, short term GRATs, grantor trusts and other valuable planning techniques remain at your disposal.
But she doesn't regret avoiding GRATs and FLPs because of the years of continuing paperwork they require.
Robert (Buff) Miller, a partner at Cooley Godward in Palo Alto, explains how GRATs work--all within IRS rules.
Ashlea Ebeling, October Opportunity for GRATs and Family Loans, Forbes.com Blog: The Best Revenge, Sept. 27, 2010.
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Presumably any changes in the law would apply only to GRATs put in place after it is passed.
So-called grantor-retained annuity trusts, or GRATs, let people give a portion of an asset's future profits to heirs tax-free.
For more on Grats, read this piece by my colleague Ashlea Ebeling.
The section 7520 rate is used for GRATs and CLATs, among other strategies.
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Both the Obama Administration and congressional Democrats have proposed new limits on GRATs.
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The trusts have been popular tools for passing along battered stocks, especially because GRATs work best when interest rates are low.
Some combine GRATs with other tax-saving entities--arguably in ways Congress didn't intend.
Like intrafamily loans, GRATs are more appealing when interest rates are low.
Require a 10-year minimum term for grantor retained annuity trusts (GRATs).
Most GRATs are set up to run for 2-3 years, Doyle said, during which the grantor can receive stock back as annuity payments, instead of cash.
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If the assets put in a GRAT appreciate faster than a set rate--4% a year for GRATs set up in December 2002--you pass on assets gift-tax free.
Most private-stock GRATs are set up so that if they grow only 7.5% a year, the grantor gets back all or almost all of it in annuity payments.
This bill would require consistent valuation for transfer and income tax purposes, modify the rules on valuation discounts, and require 10-year minimum term for Grantor Retained Annuity Trusts (GRATS).
GRATs are especially effective right now because (1) many assets are still undervalued, (2) the section 7520 interest rate is very low, and (3) short-term GRATs are still possible.
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That increases the risk the person setting it up will die during the term of the GRAT, making GRATs less attractive for the older folks who typically set them up.
For a plain-English explanation of how GRATs and other estate planning opportunities work, see Estate Planning Smarts: A Practical, User-Friendly Action-Oriented Guide, the bestselling book by Deborah L. Jacobs .
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There have been proposals in Congress to eliminate zeroed-out GRATs and, more drastically, to require GRATs to have a term of at least 10 years, compared with the current two-year minimum.
For more on how GRATs work, click here.
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Very popular over the last ten years and different from the defective grantor trust discussed above, grantor retained annuity trusts (GRATs) have been used to transfer appreciating assets to future generations free of gift tax.
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Another reason to do a GRAT now, Rico points out, is that legislation cracking down on GRATs has been surfacing all year in various bills as a revenue raiser, and is likely to make it into law.
Today's entrepreneurs don't have to make it a family affair: There are stadiums full of lawyers, accountants and planners buzzing about GRATs (grantor retained annuity trusts), FLPs (family limited partnerships), LLCs (limited liability companies) and CRTs (charitable remainder trusts).
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