Going the Extra Mile with GRATS—Reflections on Optimal Planning Strategies
Probate and Property, November/December 2004, Volume 18, Number 6
By Steve R. Akers
Steve R. Akers is a managing director of Bessemer Trust in Dallas, Texas. Portions of this article are based on analysis in an article entitled GRATS—Ringing the Bell at the County Fair by the author and Andrew Parker that appeared in the Fall 2003 issue of the ACTEC Journal.
The basic strategy for making gifts, particularly in light of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, Pub. L. No. 107–16, 115 Stat. 38 (2001), is to make gifts without generating a federal gift tax. A donor can accomplish this by using annual exclusion gifts (currently $11,000 per donor, per donee), medical/tuition exclusion gifts, and aggregate lifetime gifts within the donor’s lifetime “applicable exclusion amount,” currently fixed at $1 million for federal gift tax purposes. For the client who has “maxed out” on annual exclusions and applicable exclusion amount gifts, the next strategy is estate freezing. The goal would be to freeze the value of assets to be included in the donor’s estate at their current value (or at their current value boosted by a specified interest rate factor). The grantor retained annuity trust (GRAT) is a terrific estate-freezing device that is specifically authorized in Code § 2702.