Article On Grantor Retained Annuity Trusts

Steven Arsenault (Professor, Charlotte School of Law) recently published an article entitled, Grantor retained annuity trusts: after $100 billion, it’s time to solve the great GRAT caper,63 Drake L. Rev. 373-399 (2015). Provided below is an excerpt from the article:

The Author proposes that the Treasury Department adopt an administrative exception under which the traditional valuation rules using the statutory assumed rate of return would not apply if, taking into account all facts and circumstances known to the grantor at the time of the creation of the trust, there is at least a 50 percent probability that, over the 36-month period following the transfer to the trust, the real rate of return on the assets transferred to the trust would exceed the assumed rate of return by 200 percent or more. This exception draws by analogy on an existing administrative mortality exception providing that the traditional valuation rules do not apply where the individual who is the measuring life for valuation purposes dies or is terminally ill at the time the gift is completed. The Author’s proposal does not seek to remove the traditional valuation method entirely. Rather, it is aimed at those situations in which the disparity between the statutory assumed rate of return and the real expected rate of return is so great that the use of the assumed rate is likely to be viewed as abusive.