A benefit of working hard is sharing the fruits of your labor with your loved ones. However, gift or estate tax consequences impact high net worth clients when they share their wealth. By crafting a comprehensive estate plan, we can address these concerns and protect high net worth clients and their loved ones. The following three types of trusts may assist high net worth clients in sharing their wealth in a tax-advantageous way. Some we cover include a Grantor Trust and a Grantor Retained Annuity Trust.
Grantor Retained Annuity Trust (GRAT)
A grantor retained annuity trust (GRAT) is an irrevocable grantor trust you can use to make large financial gifts to your loved ones while also minimizing gift tax liability. These financial gifts remove future appreciation from your estate, reducing the amount that will be subject to estate tax at your death. However, gift tax liability could apply. In this case, the trust creator would pay at the onset. You create a GRAT and then fund it with accounts and property. People expect these to appreciate over the GRAT’s term. Then, you receive a fixed annuity payment, based on the trust’s original value, for a specified time. Once the period ends, the court transfers the remainder of the trust’s accounts and property to your named beneficiary.
Grantor Trusts: Retained Unitrust
A grantor retained unitrust (GRUT) is an irrevocable trust that is like a GRAT. You retain the right to receive an annuity for a fixed period. The court then transfers accounts and property to the grantor trust. Then, at the trust’s termination, the court awards the trust’s remaining accounts and property to your named beneficiary. However, with a GRUT, the annuity payment you receive is based upon a fixed percentage of the trust’s value that year. Therefore, since the trust’s value varies from year to year, the annuity amount varies even though the same percentage is used each year to calculate the annuity.
Like a GRAT, the gift tax is due at the time the accounts and property are transferred to the trust, and the gift tax liability is based on using the subtraction method. Because the annuity is based on the trust value that year, it is unlikely that the difference between what you give and retain will be zero, which will require that some gift tax be paid.
Qualified Personal Residence Trust: How that differs from Grantor Trusts
A qualified personal residence trust (QPRT) is an irrevocable trust that you can use to remove your residence from your overall estate. Ownership of the residence is transferred to the trust, and you retain the right to use and enjoy the property for a specified time. Then, once that time terminates, the residence is transferred to your named beneficiary. If you would like to continue living in or using the residence, you will have to pay the beneficiary rent. You may need to consider your relationship with the beneficiary when evaluating whether this tool would serve your needs.
About Skvarna Law Firm in Glendora and Upland, California
Let a skilled attorney assist with your estate plan and arrange grantor trusts. So, contact us today to learn about your options (909) 608-7671. We operate offices in Glendora and Upland, California. Therefore, we provide legal services for individuals living in San Bernardino, Los Angeles, Orange, and Riverside Counties. This includes the cities of Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Montclair, Pomona, La Verne, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
