• Estate PlanningGrantor Retained Interest Trusts

    The three (3) allowable Grantor Retained Interest Trusts are the following: the Grantor Retained Annuity Trust (GRAT), the Grantor Retained Unitrust (GRUT), and the Personal Residence Trust. These types of Trusts allow a Grantor to remove property and appreciation from the Estate, while retaining an interest in the Trust.


    The Grantor may not retain the right to all of the income from such Trust, but rather an annuity based on a specific dollar amount or percentage of the Trust assets. In the GRAT or GRUT, the annuity is payable for a term of years, usually from five (5) to ten (10) years.

    At the end of the annuity term, the remainder is either distributed to, or held in, further Trust for the benefit of, the ultimate beneficiaries.

    The Grantor will have made a gift of a portion of the fair market value of the property transferred to the Trust minus the Grantor’s retained interest based on the term of years and IRS interest rates. Thus, the longer the term of the retained annuity, the smaller the amount of the gift to the remainder beneficiaries.

    It should be noted that if the Grantor dies before the term of the annuity ends, the entire Trust will be included in the Grantor’s Gross Estate for Federal Estate Tax purposes.

    Under prior law, an individual could transfer assets into a Trust, retaining a right to all of the income for life, and designating children or other beneficiaries to receive the remainder after the Grantor’s death. The Grantor would have made a gift of the value of the property transferred less the retained right to income, determined actuarially.

    Thus, a Gift Tax may have been payable on a relatively small gift. Moreover, the Grantor could maximize this technique by investing the Trust assets for growth, rather than income production. This resulted in small income payments, and a transfer of highly appreciated assets, at low Gift Tax cost.

    Congress severely restricted this technique in the early 1990s by treating the entire value of the property transferred to such a Trust as a Taxable Gift. However, this gifting technique may continue to be utilized through the use of certain specific types of Trusts.

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    If you or a loved one needs help with a situation involving one of these areas, please contact Thomas N. Silverman, P.A. at 561.775.7500 (24 hours) or info@FloridaProbateCounsel.com.

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