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1 Grantor retained income trusts (GRITs) A The acronym GRIT is used to refer to all grantor retained income trusts, including common law GRITs, GRATs, and GRUTs (see following sections (2) and (3)) Property is transferred into an irrevocable trust, where the grantor retains the right to income for a period of years, after which the trust ends and the property is transferred to the remaindermen If the transferor survives the income period, all bene cial interest in the trust ceases, and the asset is out of the transferor s estate However, the taxable gift value is included in the estate tax base as an adjusted taxable gift If the transferor does not survive the income term, Section 2036(a) applies and the assets are included in the grantor s estate B The primary purpose of a GRIT is to leverage the applicable exclusion amount (AEA) to avoid estate tax, not gift tax The value of the gift made is calculated by taking the FMV of the property and reducing it by the retained interest This equals the remainder interest that is considered a gift This remainder interest is a future interest and is discounted Therefore, the longer the term of the trust and the higher the Section 7520 rate, the smaller the gift value The result is to freeze the value in the grantor s interest and transfer growth in value to the children, escaping larger gift and estate tax C There is no reason to create a GRIT of any kind with a term that goes beyond 2009, because the estate tax is repealed at that time In the post-EGTRRA (Economic Growth and Tax Relief Reconciliation Act) era, a GRIT is bene cial only if the term ends before the settlor dies and the settlor dies before 2010 If a settlor dies after 2009, assuming the estate tax remains repealed, the now distributed GRIT turns out to be a waste of time The remaindermen receive the trust assets with a carryover basis If the settlor had simply held on to the assets, the increase in basis would have been allocated to them 2 Grantor retained annuity trusts (GRATs) make xed payments to grantor at least annually 3 Grantor retained unitrust (GRUTs) The required payment is determined each year as a percentage of the fair market value of the trust property The value of the assets are recalculated each year 4 Quali ed personal residence trusts (QPRTs, or House-GRITs) A QPRTs can hold an interest in only one residence B The grantor who survives the term of a QPRT does not have to vacate the residence, because he or she can rent it as a remainderman The transaction must be at arm s length and at fair rental value C The residence cannot be purchased from the trustee by the settlor, the settlor s spouse, or an entity controlled by them.

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Add QR code on PDF invoice using Crystal Reports 2013 - SAP Archive
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310 - Estate Planning 5 Tangible personal property trusts A The problem with setting up these trusts is that it is dif cult to value a term interest for tangible personal property B The zero valuation rule of Section 2702 does not apply to tangible property where: (1) The failure of the interest holder to exercise rights would not have a substantial impact on the remainder interest (2) No depreciation deduction is allowed 6 Limitations on the valuation of remainder interests of quali ed interest trusts A Section 2702 limits the advantage of a grantor retained trust by valuing the income interest at zero when the transfer is made to a family member This means that the entire value of the transferred property is subject to immediate gift tax (ie, it is not discounted by the term) For gift tax purposes, the nonquali ed retained interests are treated as if they were not retained B To be quali ed, a retained income interest must be paid annually and there must be a precise way of calculating the amount There are four types of Section 2702 GRITs that avoid the zero valuation rule for the retained interest (1) GRATs (2) GRUTs (3) QPRTs (4) Tangible personal property trusts C If the retained interest is a qualifying one, the zero valuation rule is avoided If Section 2702 applies and the retained interest is not a quali ed one, the interest is given a zero value D Example: Jerry transfers $1 million into a trust, retaining the right to all income for 15 years His two children are the remaindermen The income interest is valued at zero because it is neither a GRAT nor a GRUT The result is that the entire $1 million value is a taxable gift

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