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Congress Moves to Limit Trusts that Work Around Estate Tax

On Behalf of | Oct 29, 2010 | Inheritance And Estate Tax |

When an individual begins considering his or her estate plan, the question of asset protection almost invariably arises. Especially for those individuals with larger estates, small businesses, real estate or other money-generating assets, the return of the estate tax next year is daunting.

Being said, there are planning tools that the alert estate planner can use to protect the things he or she has worked so hard for. One of these tools is known as a grantor-retained annuity trust (GRAT).

Using a GRAT, those with moneymaking or money-accruing assets, such as a small business or certain types of stock, are able to pass a rather large amount of future asset earnings on to a family member (or members) tax-free.

However, with Washington strapped for cash and legislators sensitive to this year’s lapse in the estate tax, the passage of new limits on GRAT functionality seems all but certain. As Anne Tergesen writes in The Wall Street Journal, these modifications could take the form of an increased time limit on the GRAT’s lifespan or a higher percentage rate on minimum interest paid to the GRAT funder.

With GRATs staying where they are for the time being, many estate planners are recommending that clients with the assets to do so consider such a trust before next year’s estate tax return.

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