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What are the Benefits of a Grantor Retained Annuity Trust (GRAT)?

A Grantor Retained Annuity Trust (GRAT) is an excellent option for individuals looking to transfer wealth to heirs while minimizing gift and estate tax liabilities. By establishing a GRAT, the grantor transfers assets into the trust and retains the right to receive fixed annuity payments over a set term, typically two to ten years. If the assets appreciate at a rate greater than the IRS’s assumed rate, the excess value passes to beneficiaries tax-free, providing significant savings. This strategy is particularly effective in low-interest environments or when high-growth assets are expected to appreciate substantially. One thing to be aware of however, is that if the grantor passes away during the trust term, any assets remaining in the trust might be included in their estate, which might erase some of the benefits of the GRAT. Careful planning is required to ensure that the full tax advantages apply to your estate. A

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When to Choose an Intentionally Defective Grantor Trust (IDGT)

An Intentionally Defective Grantor Trust (IDGT) is a useful tool for families and individuals who have appreciating assets, such as a family business or real estate. It allows the grantor to transfer appreciating assets, while minimizing tax exposure. By establishing an IDGT, the grantor pays income taxes on trust assets, allowing them to grow tax-free for the benefit of future generations. The unique structure significantly reduces the size of the grantor’s estate while shifting valuable assets out of it, avoiding substantial estate taxes down the line. An intentionally defective grantor trust is drafted using language that contains “intentional defects.” These are provisions that make the trust meet the definition of a revocable trust for income tax purposes, while also being considered an irrevocable trust for estate tax purposes. For a revocable trust, income is usually taxed to the grantor of the trust who is treated as the owner for tax

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Get Back to Your Estate Plan!

If you are like me and like many friends and colleagues you’ve been all geared up and getting ready to get back to school. Whether you have your own children in school or grandchildren or nieces and nephews or you are sending kids off to college, it feels like September is really the time when the year begins. This serves as a reminder that summer ends all too quickly and it feels like another year has gone by and things can change quickly and life just happens. Preparing for change is a big part of what we do and planning for life’s unexpected events that just happen. We could spend our days worrying about what’s in store for us around the corner or we can take time to plan in the event of a health issue or an unexpected passing of a family member so that our wishes are followed

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Is Your Trust Safe in a Divorce? The Implications of Jones v. Jones for Estate Planning in Massachusetts

An important recent case in Massachusetts has planning implications for married couples, especially when there is inherited property. The divorce of Jones v. Jones was filed in 2019. Inherited property and gifted property was a significant issue in the divorce. The wife’s mother had set up an irrevocable trust for the benefit of her daughter and had supported the couple financially throughout the marriage. The judge in the case deemed that the trust should be treated as marital property. The wife disagreed on the grounds that the interest in the trust was too speculative to be defined as such. In September 2023, the Massachusetts Appeals Court decided that the trust could be considered marital property. The wife argued that she had not received any distributions from the trust and she would not receive the trust assets in full until her mother’s death. Yet the appeals court found that the existence

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Estate Planning Pop Quiz

Posted by Robert L. Arone August means school is back in session or just around the corner, signaling the return of new school supplies, homework, and pop quizzes. Try your hand at this estate planning pop quiz to see if your knowledge of estate planning makes the grade. Question #1: True or false? The only people involved in an estate plan are the client and the estate planning attorney who drafts the documents. Answer: False. Many advisors such as financial planners, certified public accountants (CPAs), and insurance agents play an important role in the estate planning process. For example, one of the first steps in creating an estate plan is understanding what property the client owns. This may include tangible property such as real estate, vehicles, and collectibles, as well as intangible assets such as retirement accounts and insurance policies. A client’s advisors can help the estate planning attorney understand everything the client owns

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