• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The Mendel Law Firm, L.P.

Attorneys & Counselors

Call Now: (281) 759-3213

  • FB
  • TW
  • IN
  • RSS
LP Payment button
  • Home
  • Our Firm
    • About Our Firm
    • About The American Academy
    • Advantages of Working With Our Firm
    • Attorney and Staff Profiles
    • Mission Statement
    • Multimedia
    • Published Books
    • The Academy Fellow Designation
  • Services
    • Asset Protection & Business Planning
    • Elder Law & Medicaid Services
      • Are You A Caregiver
      • Coping With Alzheimer’s
      • Guardianship & Conservatorship
      • Hospice Care
      • Emergency Medicaid & Nursing Home Planning
      • Medicaid Planning
      • Veteran’s Benefits
    • Estate and Gift Tax Figures
    • Estate Planning Services
    • Family-Owned Businesses & Farms
    • Financial Planning Assistance
    • Incapacity Planning
    • IRA & Retirement Planning
    • Legacy Planning
    • LGBTQ Estate Planning
    • Pet Planning
    • SECURE Act
    • Special Needs Planning
    • Trust Administration & Probate
  • Seminars
  • Testimonials
    • Client Testimonials
    • Representative Clients
    • Review Us
  • Resources
    • Areas We Serve
      • Baytown
      • Conroe
      • Galveston
      • Houston
      • Pasadena
      • Woodlands
      • West University Place
    • Elder Law Reports
    • Elder Law Resources
      • Galveston Elder Law
      • Houston Elder Law
      • Sugar Land Elder Law
      • West University Place Elder Law
      • Woodlands Elder Law
    • Estate Planning Resources
      • Estate Planning Checkup
      • Estate and Gift Tax Figures
      • Estate Planning Definitions
      • Estate Planning Reports
      • Incapacity Planning Definitions
      • Is Your Estate Plan Outdated?
      • Top Estate Planning Techniques
      • Top 10 Estate and Legacy Planning Techniques
    • Frequently Asked Questions
      • Asset Protection Planning
      • Avoidance Tax Planning
      • Avoiding Probate
      • Business Succession Planning
      • Charitable Gifting
      • Elder Law
      • Estate Planning
      • Frequently Asked Questions for Families Without an Estate Plan
      • IRA and Retirement Planning
      • Legacy Wealth Planning
      • LGBTQ Estate Planning
      • Living Trusts
      • Medicaid
      • Medicaid Planning
      • Nursing Home Planning
      • Pet Planning
      • Power of Attorney
      • Probate
      • Trust Administration
      • Trust Administration & Probate
      • Trusts
      • Veterans Benefits
      • Wills
    • LGBTQ Resources
    • Probate Resources
      • Houston Probate
      • Sugarland Probate
      • Woodlands Probate
      • West University Place Probate
    • Probate & Trust Administration Resources
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • Loss of a Loved One
      • The Mourner’s Bill of Rights
      • Things You Need To Do When a Loved One Passes Away With a Trust
      • Things You Need To Do When a Loved One Passes Away With a Will
      • Trust Administration & Probate Definitions
    • Special Needs Resources
    • Newsletters
  • Contact Us
  • BLOG
Home » BLOG » What Is a Grantor Retained Annuity Trust?

What Is a Grantor Retained Annuity Trust?

October 19, 2016 by Stephen A. Mendel, Estate Planning Attorney

What Is a Grantor Retained Annuity Trust?If you are exposed to the federal estate tax, tax efficiency is going to be very important to you. The wealth that you have been able to accumulate throughout your life can be eroded significantly by this tax, because it carries a 40 percent maximum rate.

The federal estate tax credit or exclusion is $5.34 million in 2014, and it will be $5.43 million in 2015. This is the amount that you can transfer to people other than your spouse tax-free. If you are transferring more than this, the estate tax is a factor for you.

There are various different tax efficiency strategies that can be implemented, and one of them is the zeroed out GRAT strategy. In an estate planning context, this acronym stands for a grantor retained annuity trust.

Volatile Assets

To implement this strategy, you fund of the grantor retained annuity trust with assets that you expect to appreciate considerably during the trust’s term. When you are creating the trust agreement, you name a beneficiary who would assume any remainder that may be left in the trust after the term expires.

Since there is a beneficiary who could be assuming ownership of the remainder that could be left in the trust, the gift tax could be applicable. The Internal Revenue Service accounts for anticipated interest by adding 120 percent of the federal midterm rate. This is alternately referred to as the hurdle rate.

As the grantor of the trust, you receive annuity payments throughout its term. You decide on the amount of these payments.

The idea is to zero out the grantor retained annuity trust. You calculate the annuity payments to equal the entire taxable value of the trust.

If the Internal Revenue Service was accurate in its application of anticipated interest using the hurdle rate, there would be nothing left in the trust for the beneficiary. This is what the IRS would theoretically be expecting.

However, in the beginning, you made an effort to fund the trust with appreciable assets. If you were on the money, there will in fact be something left in the trust after the expiration of the term.

The beneficiary would assume ownership of this remainder in a tax-free manner.

Explore Estate Tax Efficiency Strategies

If you are in possession of appreciable assets, a zeroed out grantor retained annuity trust can be an effective component within a broader tax efficiency plan. However, the optimal course of action will vary depending on your unique personal situation.

Personalized attention is the key to a well constructed estate plan, and our firm can help if you are looking for answers.

We offer free wealth preservation consultations, and you can send us a brief message through this page to set up an appointment: Houston TX Estate Planning Attorneys.

 

 

  • Author
  • Recent Posts
Stephen A. Mendel, Estate Planning Attorney
Stephen A. Mendel, Estate Planning Attorney
Mr. Stephen Mendel is an attorney who focuses a substantial part of his practice on estate planning. Mr. Mendel’s guiding principle is to provide his clients with quality legal services tailored to each client’s specific needs and goals.
Stephen A. Mendel, Estate Planning Attorney
Latest posts by Stephen A. Mendel, Estate Planning Attorney (see all)
  • Thought of the Day - February 1, 2023
  • Thought of the Day - January 25, 2023
  • Thought of the Day - January 18, 2023

Filed Under: Uncategorized Tagged With: Estate Planning

Other Articles You May Find Useful

  • Thought of the Day
  • Thought of the Day
  • Thought of the Day
  • Thought of the Day
  • Thought of the Day
  • Thought of the Day

About Stephen A. Mendel, Estate Planning Attorney

Mr. Stephen Mendel is an attorney who focuses a substantial part of his practice on estate planning. Mr. Mendel’s guiding principle is to provide his clients with quality legal services tailored to each client’s specific needs and goals.

Primary Sidebar

The Mendel Law Firm

Follow Us

  • FB
  • TW
  • IN
  • RSS

Blog Subscription

Subscribe to our blog to get all of the latest updates from our attorneys.

Plan For Your Future and Protect Your Legacy

There's a lot that goes into setting up a comprehensive estate plan, but with our FREE worksheet, you'll be one step closer to getting yourself and your family on the path to a secure and happy future.
  • This field is for validation purposes and should be left unchanged.

HOUSTON

The Mendel Law Firm, L.P.
1155 Dairy Ashford, Suite 104
Houston 77079
United States (US)
Phone: (281) 759-3213
Fax: 281-759-3214

Map

map

Office Hours

Monday8:00 AM - 5:00 PM
Tuesday8:00 AM - 5:00 PM
Wednesday8:00 AM - 5:00 PM
Thursday8:00 AM - 5:00 PM
Friday8:00 AM - 5:00 PM

Footer

The Mendel Law Firm

The information on this website is for general information purposes only. Nothing on this or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. This information on this website is not intended to create, and receipt or viewing of this information does not constitute, an
attorney-client relationship.

© 2023 Mendel Law Firm, All Rights Reserved. Privacy Policy | Contact Us | Disclaimer | Site Map | Powered by American Academy of Estate Planning Attorneys