If you want to give gifts to your loved ones while you are still alive, you have to concern yourself with the looming specter of the gift tax. This tax carries a 35% rate at the present time, and it is scheduled to rise to 55% at the beginning of 2013.
Part of what estate planning is all about is to find ways to get assets into the hands of your heirs without losing anything to taxes or probate in the process. There are a number of different instruments that can be utilized to this end, and one of them is the grantor retained annuity trust.
You as the grantor receive annuity payments from the trust throughout its term. But you also name a beneficiary who would assume ownership of any resources left over in the trust after its term has expired.
The gift tax is applicable if there is a transfer of assets at the end of the trust term, and the IRS determines the taxable value of the trust by adding the estimated interest that it would earn over its term. The objective here is to “zero out” the GRAT and to arrange for the annuity payments to equal the entire value of the trust including this estimated interest.
If the resources that you place into the trust appreciate beyond the initial IRS estimate, there will be a remainder at the conclusion of the trust term. This remainder would pass on to your beneficiary free of the gift tax.
To learn more about grantor retained annuity trusts and other vehicles that provide tax efficiency, simply take a moment to arrange for a consultation with an experienced San Jose, CA estate planning attorney.
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