Private Asset Management

GRATs – Now or Never? 07/19/2010

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- By Richard Bloom, CPA, PFS, MST, senior manager, Rothstein Kass Family Office Group

Last month, the House of Representatives passed the Small Business Jobs Tax Relief Act of 2010 (the ‘Act’) which, if signed into law, would significantly affect the potential benefits of grantor retained annuity trusts (GRATs). The Act would impose three new requirements on GRATs, effective for transfers made to these vehicles after the date of the enactment of the Act:

1/ The GRAT would have to have a minimum annuity term of ten years;

2/ The annuity payment would not be allowed to decline during the first ten years of the GRAT; and

3/ The remainder interest of the GRAT would have to have a value greater than zero determined at the time of the transfer.

The above provisions were also contained in the supplemental appropriations bill (H.R. 4899) that was passed by the House of Representatives on 1 July, 2010.

Primer on GRATs

To understand the impact of these requirements, we will have a quick review of what a GRAT is. In general, a GRAT is a trust established by a grantor (generally a senior family member) to which the grantor transfers (gifts) assets and retains an annuity stream for a period of time. At the end of that period of time, the assets ...

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