Various types of irrevocable trusts can be used for asset protection purposes and to reduce estate taxes. The purpose of this article is to discuss the reduction of estate taxes through the use of a Grantor-Retained Annuity Trust (GRAT).
Property, including property that is expected to increase in value significantly over time, may be placed in the trust. The property transferred will be treated as a current gift at the time the gift was made for gift tax purposes. However, gift taxes can be avoided by careful planning through the use of the gift tax annual exclusion and lifetimeexclusion.
The senior retains the right to receive money from the trust for a term. The term may be for the life of the senior and/or others such as a spouse; or, for a stated number of years. The money paid to the senior is subject to income taxation and must be reported on the senior’s tax return. At the end of the term of the trust, the remaining assets in the trust will be paid to the individuals specified in the trust document.
The benefit of this type of trust is to provide a stream of income to the senior while reducing the value of the senior’s estate for estate tax purposes at the senior’s death. As with any estate planning, this type of trust should be discussed with an attorney to determine if the trust works with the senior’s overall goals.
Editor’s Note: Melanie B. Bradford is an attorney located in Scottsboro, Alabama at 803 Garland Ferry Road at the intersection of Veterans Drive and Garland Ferry near The Daily Sentinel. Her phone number is 256-259-3301. The Alabama State Bar requires any communication that may be interpreted as an ad to state: “No representation is made about the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.”