While Olympians are Jumping Hurdles in Rio, Consider a “Low-Hurdle” Opportunity for Transferring Wealth
While Rio and the world prepare for the return of the summer Olympics next month, the estate planning world is readying itself for the August return of an historically low federal interest rate – a key component in many beneficial estate planning techniques. A special type of trust called a "grantor retained annuity trust" (sometimes referred to as a "GRAT") can leverage this low interest rate and provide an opportunity to transfer property to children or others for little or no gift tax cost.
After funding a GRAT, if the trust assets appreciate or produce income at a pace greater than a rate set by the federal government, that excess growth would be passed on to the next generation at the end of the trust term (often two years). The current economic climate has produced meaningfully low federal interest rates – for example, the rate is 1.4% for August 2016. Thus, the performance bar for the trust assets is extremely low and the likelihood of successfully transferring assets to the next generation utilizing a GRAT has correspondingly increased.
There is little downside risk to a GRAT. If trust assets do not appreciate at a pace greater than the federal rate, or the individual funding the trust dies before the end of the trust term, the trust assets would be returned to the trust grantor (or the grantor's estate) and little more than opportunity costs would be lost.
Depending on the performance of the trust assets, the transfer of wealth to the next generation could be significant.
For more information, please contact any member of Ice Miller’s Trusts and Estates group.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.