Grantor Retained Annuity Trusts (GRATs)

A Means To Make Substantial Tax-Exempt Gifts

As of 2019, each taxpayer has an $11.4 million exemption from federal gift and estate tax and a $2.7 million exemption from Minnesota estate tax. The federal exemption is indexed for inflation, so it should increase most years. The Minnesota estate tax is scheduled to increase to $3 million in 2020, but will remain at that level in the future. If you have a large estate and want to transfer property to your family or to trusts substantially in excess of the federal and Minnesota exemptions, a grantor retained annuity trust (GRAT) may, in the right circumstances, give you the opportunity to make these transfers without the imposition of a gift or estate tax.

Schedule a consultation with the attorneys at Quinlivan & Hughes, P.A., to see if a GRAT can benefit you. We have helped numerous individuals and families in St. Cloud and throughout Central Minnesota in all manner of estate planning considerations, including business succession planning. We are experienced and personable, and will help determine if a GRAT is a sound means to protect your assets from taxes.

What Is A GRAT And Why Should I Establish One?

A GRAT is based upon the concept that the ownership of property may be separated into a current time period, during which you retain the right to receive annuity payments on it, and a future time period, when ownership of the property is ceded after the GRAT annuity term ends. The fair market value of the property is calculated and split into two: the value of the annuity interest you retain, and the value of the future interest your family members will receive at the end of the GRAT annuity term. That future interest percentage is the gift that will be charged against your exemptions. If the present value of your retained annuity payments over the term of the GRAT is at or near the total value of the property transferred to the GRAT, then the value of the future interest will be minimal. Therefore, with many GRATs the donors can transfer significant assets while using very little of their federal and Minnesota exemptions.

You should consider a GRAT if you have property that you expect to appreciate significantly, or property that produces large amounts of cash annually, which can be used to pay the annuity amount during the annuity term.

Determine If A GRAT Can Benefit You

Establishing an effective GRAT is not a straightforward process. It requires detailed planning geared to your particular circumstances. We can help. To speak with one of our attorneys, call Quinlivan & Hughes, P.A., at 320-200-4928. You can also contact us online.