GRATs Subject to Reform

Perhaps due to their popularity over the past two years, GRATs are a target of the Small Business and Infrastructure Jobs Tax Act of 2010. This tax legislation was passed by the House in March and is now being considered by the Senate.

Among other things, the Act would require that GRATs have a minimum term of ten years, making it harder for elderly individuals to use GRATs. If the holder of a GRAT dies during the trust term, the assets in the trust go to the holder’s estate and will be subject to estate taxes. Elderly individuals were able to reduce this risk by limiting GRATs to just a few years, but the new ten year limit will be much riskier. 

The Act will also prohibit zeroed-out GRATs, meaning that gift taxes will have to be paid on transferred assets.

Estate planners agree that GRATs “worked too well,” making them an easy target for reform.

For more information, including alternative planning techniques, see Raymond Fazzi, GRAT Limits Likely, Fin. Advisor, May 2010.

Special thanks to Jim Hillhouse (Wealth Counsel) for bringing this to my attention.