Using a zeroed out GRAT eliminates the risk of paying gift taxes on property that will be included in the grantor's estate
if he or she does not survive the GRAT term.
The taxable gift is determined by subtracting the value of the grantor's right to remain in the home (valued as an income interest) and the value of the possible reversion to the grantor's estate
Generally, such trusts are designed to take full advantage of the unified credit in the grantor's estate
and exclude the corpus from the surviving spouse's estate.
The IRS ruled that this did not cause the assets of the trust to be included in the grantor's estate
for estate tax purposes.
For federal estate tax purposes, trust assets are included in the grantor's estate
Basis is adjusted to the estate tax value of the portion of the trust property included in the grantor's estate
attributable to the beneficiary's remainder interest.
From the date the GRAT is funded until the 20th anniversary of such date, the trustee shall pay the grantor or the grantor's estate
an annual annuity of 7.
The procedure requires spouses, in certain circumstances, to waive the right to claim a portion of a CRT as part of their statutory share of the grantor's estate
, for the trust to qualify for the charitable deduction.
R states that it will, "to the extent that the assets of the Grantor's estate
The procedure requires, under certain circumstances, a grantor's spouse to waive his or her right to claim a portion of a CAT as part of the spouse's statutory share of the grantor's estate
If the trust's governing instrument or local law provides only that the trustee has the discretion to reimburse the grantor for taxes paid, this will not cause the trust assets to be included in the grantor's estate
, unless it can be shown that there was a pre-existing arrangement between the grantor and the trustee for such reimbursement.
If this happens, the entire GRAT is includible in the grantor's estate
The trust's term should be set so there is a reasonable prospect of the grantor surviving beyond the end of the term--otherwise, the grantor's death before the end of the term will cause at least a portion of the amount transferred to be included in the grantor's estate
, under Secs.
It concluded that a retained annuity payable for a specified term of years to the grantor (or to the grantor's estate
if he or she dies before expiration of the term), is a qualified interest under Sec.
It is considered a grantor trust for income tax purposes, but it is not includible in a grantor's estate
for estate tax purposes.