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The NSPA Blog

A Special Type of Trust

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Posted on August 23rd, 2016 by Teri Dreher, under Tips & Resources

Have you reviewed your will or your trust lately? Have you considered making any changes? Here is some information you should know in determining if any changes are necessary -and could benefit you and your heirs.
The estate planning world is readying itself the August return of a historically low federal interest rate – a key component in many beneficial estate planning techniques.
A special type of trust called a “grantor retained annuity trust” (sometimes referred to as a GRAT) can leverage this low interest rate and provide an opportunity to transfer property to children or others for little or no gift tax costs.

After funding a GRAT, if the trust assets appreciate or produce income at a greater pace than a rate set by the federal government, that excess growth would be passed on to the next generation at the end of the trust term, which is two years.
Currently, there is a low federal interest rate, which is 1.4% for August 2016. This means, the performance bar for the trust assets is extremely low and the likelihood of successfully transferring assets to the next generation utilizing a GRAT is good.
There is little downside risk to a GRAT. If trust assets do not appreciate at a pace greater than the federal rate, or the individual funding the trust dies before the end of the trust term, the trust assets would be returned to the trust grantor (or the grantor’s estate) and little more than opportunity costs would be lost.
There is no minimum funding amount, however; generally a GRAT is established with approximately one million in assets.
It’s helpful to consider what the likely growth and income on the assets will be to analyze whether a GRAT is worth the set up costs. It is important to discuss this with your accountant or CPA before taking this step. If you decide a GRAT should be explored as an option for you, the financial planner will evaluate the assets with the client’s accountant.
Depending on the performance of the trust assets, the transfer of wealth to the next generation could be significant.
A GRAT is very different from a revocable living trust. Often people want both. A GRAT is a vehicle to making lifetime transfers to children or others at a reduced gift tax cost.

Please note, this is general information and is not intended to constitute legal advice. According to Ice Miller Legal Counsel, which has offices in Illinois and other states, you should consult with your legal counsel to determine how laws or decisions apply to your specific circumstances.

With over 36 years of clinical experience in Critical Care nursing, home based health care and expertise as a cardiovascular nurse clinician, Teri is well acquainted with the complexities of the modern healthcare system. She has served as a nursing leader, mentor, educator, and consistent patient advocate throughout her career in some of the best hospitals across the country. Her passion to keep the patient at the center of the model of nursing care led her to incorporate NShore Patient Advocates, LLC in 2011, serving clients throughout the northern suburbs of Chicago.

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