A Great In Your Estate Planning
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Written by Morgan T. McDonald
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Tuesday, 27 December 2011 |
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Grantor-retained annuity trusts (GRATs) are among today's most popular tools for transferring ownership of a closely held business while retaining income or control and reducing federal estate taxes.
With a GRAT, a business owner transfers company stock or other income-producing assets to an irrevocable trust that pays the owner a fixed income for a set number of years. At the end of that time--say, three, five or ten years--the property goes to the trust's beneficiaries, perhaps the owner's children.
The beauty of a GRAT is that the value of the assets for gift-tax purposes is fair market value at the time of the gift minus the present value of the income that will be paid out to the grantor over the term of the trust. The value may be further discounted if, for example, the shares represent a minority interest or there are restrictions on their sale. Thus, if the trust is engineered carefully, a GRAT can remove a sizable chunk of the business's value (and any future appreciation) from the owner's estate absolutely free of gift and estate taxes. If the owner dies before the end of the trust term, however, the assets go back into his or her estate.
For more information on GRATs and other topics related to succession planning, read Passing the Torch: Succession, Retirement, & Estate Planning in Family-Owned Businesses, by Mike Cohn (McGraw-Hill). Cohn, a Phoenix-based family-business consultant, is offering the book to Kiplinger's readers for $15, including postage. Call 800-422-3883 and ask for Department K.
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Last Updated ( Tuesday, 27 December 2011 )
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Basic Estate Planning
