Law Offices Of Connie Yi, PC
Tell Us About Your Case

For the safety of our community, clients and staff, we have suspended all in-person meeting effective March 17, 2020. All consultation meetings will be via Phone or Zoom Video Conferencing. Please contact us at 925-484-0888 or email us directly at [email protected] to schedule the consultation.

Bay Area Estate And Tax Planning Law Firm
Estate Planning
Trust Administration and probate


One trust that can make sense for some high-asset estate planners

| May 19, 2020 | Trusts |

It’s called a grantor retained annuity trust. Candidly, it’s not an estate planning tool with universal applicability.

Could it make sense for you, though?

We reference GRATs on our website at the long-established Bay Area Law Offices of Connie Yi. We stress therein that the decision to establish such a trust – or any other of the many types of trusts available – “requires careful planning to determinate what is right for your circumstances.”

One indicator that a GRAT might be a vehicle worth pursuing is the amount of wealth that a planning individual or couple possesses. A grantor retained annuity trust can make great sense in cases where substantial assets are targeted for receipt by a future generation.

The basics of a GRAT work as follows.

First, a grantor places assets into an irrevocable trust for a stated time period. Those assets will hopefully grow over time. The IRS requires that an annuity payment be periodically paid by the grantor. Ultimately, trust proceeds will go to beneficiaries without tax consequences.

The key to whether a GRAT will be beneficial in a given instance hinges on two key factors.

The first is whether trust investments will rise materially in value during the trust term. A recent Forbes article suggests that they might well do so for newly created GRATS, given the beating that market holdings have taken during the COVID-19 pandemic. Historically, stocks have risen dramatically following bear market lows. That they will do so again is not guaranteed, of course, but many pundits predict an eventual price climb.

The second point relates to the IRS determination of the grantor’s annuity payment during the trust term. Pundits point out that the current rate is “incredibly low” and might reasonably be expected to stay that way. That means more money remains in the trust and will eventually be released tax-free to beneficiaries.

A GRAT is not something every planner should consider. As Forbes notes, though, a grantor retained annuity trust with a relatively short time frame might now be a tool well worth considering for some estate planners.

A proven estate planning attorney with deep experience in trust creation and administration can provide further information.



FindLaw Network

Recent Blog Post

What are reasonable fees to charge as a trustee in California?

When implementing an estate plan in California, it is essential to ensure that you receive the proper compensation for the amount of time and work you are putting in. The probate court will look through the amount you charge to see if it is reasonable, especially if...

What to know about life insurance trusts

California families have an exemption for their estate that keeps it from being subject to income taxes. However, above that $11.7 million, the estate tax bill could get large. This is why they need to take measures to reduce the size of their taxable estate. Life...

Are estate taxes headed for changes?

Not every inheritance involves paying estate taxes, but some estates rise above the federal exclusion amount. California residents that feel familiar with state and federal tax rules might not realize changes could happen. Namely, proposals intended to raise tax...

View More Blog Posts