• Menu
  • Skip to right header navigation
  • Skip to main content
  • Skip to secondary navigation
  • Skip to primary sidebar
  • Skip to footer

Before Header

Call us today for help!  (631) 265-0599
  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • Twitter
  • YouTube

Eghrari-Logo

Long Island Elder Law & Estate Planning

  • Home
  • Who We Are
    • About Our Firm
    • Meet Our Team
  • Resources
    • Client Resources
      • Definitions
      • Docubank
      • Elder Law Resources
        • Brentwood Elder Law
        • Central Islip Elder Law
        • Commack Elder Law
        • Hauppage Elder Law
        • Smithtown Elder Law
      • Estate Planning Resources
        • Estate Planning Check Up
        • Estate and Gift Tax Figures
        • Estate Planning Techniques
        • Estate Planning Worksheet
        • FREE Estate Planning Seminars
        • Long Island Estate Planning Resources
      • New York Medicaid Resources
        • Medicaid Planning Worksheet
      • Nursing Home Resources
      • Probate Resources
        • Brentwood Probate
        • Central Islip Probate
        • Commack Probate
        • Hauppage Probate
        • Smithtown Probate
        • Suffolk County Probate Resources & Checklist
      • Presentations
      • Retirement Planning Checklist
      • Trust Administration Resources
    • Elder Law Reports
    • Frequently Asked Questions
      • Business Planning
      • Estate Planning
      • Families Without an Estate Plan
      • Incapacity Planning
      • LGBTQ Estate Planning
      • Medicaid Planning
      • Probate
      • Trust Administration
      • Trust Administration & Probate
      • Wills and Trusts
    • Reports
  • Estate Planning
    • Asset Protection & Business Planning
    • Estate and Gift Tax Figures
    • Estate Planning Services
    • Family-Owned Businesses
    • Incapacity Planning
    • Legacy Planning
    • SECURE Act
    • Special Needs Planning
    • Trust Administration & Probate
    • Young Families
  • Elder Law
    • Coping With Alzheimer’s
    • Emergency Medicaid & Nursing Home Planning
    • Hospice Care
    • Medicaid Planning
  • Areas We Serve
    • Long Island
    • Nassau County
      • Oyster Bay
    • Suffolk County
      • Brentwood
      • Central Islip
      • Commack
      • Hauppauge
      • Smithtown
  • Blog
  • Contact Us

Mobile Menu

  • Home
  • Who We Are
    • About Our Firm
    • Meet Our Team
  • Resources
    • Client Resources
      • Definitions
      • Docubank
      • Elder Law Resources
        • Brentwood Elder Law
        • Central Islip Elder Law
        • Commack Elder Law
        • Hauppage Elder Law
        • Smithtown Elder Law
      • Estate Planning Resources
        • Estate Planning Check Up
        • Estate and Gift Tax Figures
        • Estate Planning Techniques
        • Estate Planning Worksheet
        • FREE Estate Planning Seminars
        • Long Island Estate Planning Resources
      • New York Medicaid Resources
        • Medicaid Planning Worksheet
      • Nursing Home Resources
      • Probate Resources
        • Brentwood Probate
        • Central Islip Probate
        • Commack Probate
        • Hauppage Probate
        • Smithtown Probate
        • Suffolk County Probate Resources & Checklist
      • Presentations
      • Retirement Planning Checklist
      • Trust Administration Resources
    • Elder Law Reports
    • Frequently Asked Questions
      • Business Planning
      • Estate Planning
      • Families Without an Estate Plan
      • Incapacity Planning
      • LGBTQ Estate Planning
      • Medicaid Planning
      • Probate
      • Trust Administration
      • Trust Administration & Probate
      • Wills and Trusts
    • Reports
  • Estate Planning
    • Asset Protection & Business Planning
    • Estate and Gift Tax Figures
    • Estate Planning Services
    • Family-Owned Businesses
    • Incapacity Planning
    • Legacy Planning
    • SECURE Act
    • Special Needs Planning
    • Trust Administration & Probate
    • Young Families
  • Elder Law
    • Coping With Alzheimer’s
    • Emergency Medicaid & Nursing Home Planning
    • Hospice Care
    • Medicaid Planning
  • Areas We Serve
    • Long Island
    • Nassau County
      • Oyster Bay
    • Suffolk County
      • Brentwood
      • Central Islip
      • Commack
      • Hauppauge
      • Smithtown
  • Blog
  • Contact Us

What Is a Grantor Retained Annuity Trust?

Death TaxesA grantor retained annuity trust can be part of your estate plan if you are exposed to the federal estate tax. In this post we will look at the “zeroed out” grantor retained annuity trust strategy. First, we must provide some background about the federal estate tax parameters.

Exclusion and Maximum Rate

At the end of 2010 a tax relief act was passed that set the estate tax exclusion at $5 million in 2011. This act called for annual adjustments to account for inflation. A couple of years later, the Taxpayer Relief Act of 2012 made this arrangement permanent.

After a series of inflation adjustments the exact amount of the federal estate tax exclusion in 2014 is $5.34 million. This figure could rise next year if another inflation adjustment is applied.

The top rate of the federal estate tax stands at 40 percent.

Federal Gift Tax

There is also a federal gift tax that is unified with the estate tax. Large gifts that you give are subject to taxation. The gift tax and the estate tax are unified. The $5.34 million exclusion is a unified exclusion, and it applies to gifts that you give along with your estate.

Grantor Retained Annuity Trusts

Now that you understand a bit about these transfer taxes, we can look at grantor retained annuity trusts. The idea is to fund the trust with assets that you would expect to appreciate considerably. You name a beneficiary who would assume ownership of any remainder that may be left in the trust after its term expires.

When you are drawing up the trust agreement you must decide on a term, and you take distributions from the trust throughout this term.

The act of funding the trust is potentially an act of taxable gift giving, because the beneficiary may assume ownership of resources that could remain in the trust. The Internal Revenue Service calculates the taxable value of the gift by applying something called the hurdle rate to account for anticipated growth. This is 120 percent of the federal midterm rate.

You want to zero out the grantor retained annuity trust, so you calculate the annuity payments to equal the entire taxable value of the trust. Theoretically, there would be nothing left for the beneficiary to inherit, so there is no gift tax exposure.

In the beginning you endeavored to fund of the trust with highly appreciable assets. If the assets outperform the hurdle rate that was applied by the IRS at the outset, there would in fact be assets remaining in the trust at the conclusion of the term.

The beneficiary that you named in the trust agreement would assume ownership of these resources, and the transfer would take place in a tax-free manner.

If you would like to learn more about wealth preservation strategies, send us a message through our contact page to request a free consultation.

  • Author
  • Recent Posts
Eghrari Wealth Training Law Firm
Mark S. Eghrari is an attorney in private practice in Smithtown, New York. He has been in practice since 1988. Mark S. Eghrari provides extensive estate and tax planning services to individuals and businesses. Mr. Eghrari’s primary focus is helping clients avoid probate, minimize or eliminate Federal and State Estate taxes and protect their assets from the high cost of nursing care, if they become ill.
Latest posts by Eghrari Wealth Training Law Firm (see all)
  • How Is Estate Planning Different for Women? - March 8, 2023
  • Is It Time to Consider Guardianship? - March 1, 2023
  • The Problem with Pre-Paid Funeral Plans - February 22, 2023

About Eghrari Wealth Training Law Firm

Mark S. Eghrari is an attorney in private practice in Smithtown, New York. He has been in practice since 1988. Mark S. Eghrari provides extensive estate and tax planning services to individuals and businesses. Mr. Eghrari’s primary focus is helping clients avoid probate, minimize or eliminate Federal and State Estate taxes and protect their assets from the high cost of nursing care, if they become ill.

Previous Post: « What Is a Third Party Special Needs Trust?
Next Post: Why Is Retirement Planning Important? »

Primary Sidebar

Blog subscription

Subscribe to our Blog for the latest estate planning news and updates!

  • This field is for validation purposes and should be left unchanged.

Follow Us

  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • Twitter
  • YouTube

Where We Are

Eghrari Wealth Training Law Firm
50 Karl Avenue, Suite 202
Smithtown, NY 11787
Phone: (631) 265-0599
Fax: (631) 265-0754

See Larger Map
Get Directions

Office Hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 2:00 PM

Map

map for Eghrari Wealth Training Law Firm office

Footer

Office Location

Eghrari Wealth Training Law Firm
50 Karl Avenue, Suite 202
Smithtown, NY 11787
Phone: (631) 265-0599
Fax: (631) 265-0754

See Larger Map
Get Directions

Office Hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 2:00 PM

Sign Up for Our Newsletter

Sign up to get our free estate planning newsletter for all of our tips and resources

  • Disclaimer
  • Privacy Policy
  • Sitemap
  • Contact Us

Site Footer

ATTORNEY ADVERTISEMENT

Copyright © 2023 American Academy of Estate Planning Attorneys · All Rights Reserved