Time is Running Out on the 2 Year Rolling GRAT

Grantor Retained Annuity Trusts are used in the United States to make large financial gifts to beneficiaries without paying a U.S. gift tax. A GRAT is a trust with a specific life or term, usually anything longer than 2 years. In most cases a wealthy grantor transfers assets to the GRAT and retains an annuity interest in the trust. This means that the grantor receives an annual payment from the GRAT for a fixed period of time. When the GRAT term ends, any remaining assets will be distributed to the named beneficiaries. However, the grantor must outlive the trust term or the funds will fall into the probate estate and subjected to estate taxes.

Recently, the U.S. House of Representatives passed H.R. 5486, a bill that requires all GRATS to have a term of at least 10 years. This is a significant increase from the previous 2 year minimum and significantly dulls the attractiveness of this type of trust. The trust will now be more risky due to the requirement that the grantor must outlive term in order for the beneficiaries to receive the tax breaks from the trust.

The bill has passed in the House and now needs approval from the Senate. This shot period provides a window of opportunity for those who wish to seek the benefits of a GRAT. This is also a great time to review existing GRATs if asset values have declined, so that a GRAT now in place is unsuccessful. If the asset could possibly bounce back and become profitable, now is the time to contact a Florida Estate Planning Lawyer to create a new GRAT.

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