Copyright © 2009 EBS Responsible Wealth

A Grantor Retained Annuity Trust (GRAT) is an irrevocable Trust into which you place income producing property such as cash, stocks, bonds, mutual funds, and real estate.  No additional contributions can be made to the GRAT after the initial contribution is made. You, as the grantor of the trust, retain the right to receive specific payments over a specific period of time.  At the end of the time period, the assets of the trust, whatever they are worth, pass tax free to your children.  The payment amount is expressed either as a fixed dollar amount or as a percentage of the initial amount that you place in the trust.

The primary reason for setting up a GRAT is to

Copyright © 2009 EBS Responsible Wealth

A Family Limited Partnership (FLP) is a limited partnership that is organized under state law, whose partners are family members. A partnership is usually formed with one or both parents owning all or most of all the limited partnership interests and all or a portion of the general partnership interests. FLPs have a number of advantages.  The non-tax reasons for doing a FLP are significant and important to support the legitimacy of the business entity if challenged by the IRS.

Copyright © 2009 EBS Responsible Wealth

The Unified Credit Exemption is the amount of assets with which a person can die and pay no estate tax. In 2009 the exemption is $3,500,000. In 2010, the estate tax is repealed for one year (not the gift tax), and comes back in 2011 to the law that was in effect when George W. Bush first became President; an exemption of $1,000,000 and a tax rate of 55%. Various tax bills have been introduced, a number of which keep the tax rate at 45% and the exemption at $3,500,000. There is also talk that even if legislation is not enacted until 2010, it will be made retroactive to January 1, 2010. At this point it is up in the air. One thing is certain; the country needs more money to reduce our massive deficits. It is therefore likely that the estate tax will be a problem for many years to come.

Copyright © 2009 EBS Responsible Wealth

The easiest way to reduce your estate tax is by taking full advantage of your Annual Gift Tax Exclusion.  Under current law, you can give away up to $13,000 per year to as many people as you want.  If you are married, you and your spouse can give a combined $26,000 a year to your children, grandchildren, and anyone else you choose. The $13,000 is adjusted annually for inflation, and rounded to the lowest $1,000. Taxpayers can transfer substantial amounts free of gift tax through the proper use of this exclusion.

If annual gifts exceed $13,000 to any one donee, the first $13,000 is covered by the exclusion and the excess is taxable. Such excess may not result in a gift tax liability if a person has an unused Gift Tax Unified Credit (discussed below). The concept of annual exclusion gifts is generally not pertinent to gifts between spouses since these gifts are usually gift-tax free under a separate set of rules relating to the marital deduction.

A gift by someone who is married can be treated as split between the husband and wife, even if the cash or gift property is actually provided by only one of them. It is called “Gift-Splitting”.  This is useful where a large portion, or all, of the assets are owned by one spouse. It is especially useful where the donee is a child from a prior marriage. It allows a married donor whose spouse consents to gift-splitting to give up to $26,000 a year to each donee.