Estate Planning Opportunities

The current market conditions may offer estate planning opportunities to families with certain circumstances. The downturn in the market, coupled with historically low interest rates, has created an interesting environment that makes it a good time for families to consider establishing a grantor retained annuity trust (GRAT).

A GRAT is a useful tool for gifting wealth and reducing transfer taxes. A GRAT can be especially effective when it is funded with assets that are currently low in value but are expected to become more valuable once they are in a GRAT.

Whether or not gifting assets to a GRAT requires paying a gift tax depends on whether or not the value of the assets that are being gifted is less than the present value of the annuity payment retained by the grantor. The calculation of the current value of the retained annuity payment includes the applicable federal interest rate (AFR) of the month of the transfer – whereby the lower the AFR, the higher the current value of the retained annuity. Thus, current market conditions of low-value securities and low-interest rates offer an interesting opportunity for establishing a GRAT.

Whether or not a GRAT is something appropriate for a specific family’s Wealth Enterprise® is something that must be discussed with the family’s tax advisor.

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