One way to accomplish this is for the donor to retain a reversion in the GRAT or GRUT
in the event the donor dies during the term of the gift trust.
It is, however, the annual determination of the fair market value of the assets in trust that makes the GRUT
less attractive as an estate planning tool.
Even GRITS that are not qualified GRATs or GRUTs
are covered by Regs.
The major difference between these trusts is that while income-producing property is used for the GRAT or GRUT
, one's personal residence must be put into a QPRT.
With both the GRAT and the GRUT
, the value of the transferred remainder interest is equal to the value of the entire property reduced by the value of the retained interest.
If the grantor survives the term selected, significant tax as well as other transfer cost reductions may be realized with the GRAT, GRUT
, and QPRT.
If the trust is set up as a GRAT or a GRUT
only the remainder is subject to gift tax without regard to the remainderman's identity.
Unlike the GRAT or GRUT
, the gift in this case is limited to what the term holder pays for the life or term interest, not the entire value of the property.
Traditionally, closely held family businesses created a GNAT or GRUT
to provide for an orderly transfer of the business to younger family members.
If a client wishes to undertake an estate freeze transaction before guidance is obtained on discount factors for preferred stock, practitioners should consider recommending use of a GRAT or GRUT
to hold the common stock.
If the initial gift to a GRAT or GRUT
is to be minimized, the term must be fairly long (or the annual yield must be significantly increased, or both, which would cause the property to flow back into Ben's estate).
a GRAT or GRUT
, see Chapter 26), any reduction in the value of the transfer under IRC Section 2702 will also be subtracted to determine the net taxable gift.