Stop Paying Taxes - Grantor Retained Annuity Trust (GRAT) - Aaron Skloff, AIF, CFA, MBA - CEO Skloff Financial Group

I Want You to Stop Paying Taxes Grantor Retained Annuity Trust (GRAT) www.skloff.com

Federal Estate Taxes Can Destroy Wealth Year Federal Exemption Federal Estate Tax Rate 2007 $2.0 million 45% 2008 $2.0 million 45% 2009 $3.5 million 45% 2010 Estate Tax Repealed 0% 2011 $1.0 million 55% www.skloff.com

State Estate Taxes Can Destroy Wealth Top State Estate State State Exemption Tax Rate 2009 Connecticut $2.0 million 16% Delaware $3.5 million 16% Illinois $2.0 million 16% Kansas $1.0 million 3% Maine $1.0 million 16% Maryland $1.0 million 16% Maine $1.0 million 16% Minnesota $1.0 million 16% New Jersey $675,000 16% New York $1.0 million 16% www.skloff.com

State Estate Taxes Can Destroy Wealth Top State Estate State State Exemption Tax Rate 2009 North Carolina $3.5 million 16% Ohio $338,333 7% Oklahoma $3.0 million 10% Oregon $1.0 million 16% Rhode Island $675,000 16% Tennessee $1.0 million 9.5% Vermont $2.0 million 16% Washington D.C. $1.0 million 16% Washington $2.0 million 19% www.skloff.com

Understanding a Grantor Retained Annuity Trust A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust created by a person (the “Grantor”), who transfers assets into the trust and receives a stream of annuity payments from the trust for a specified term. At the end of the term the remaining assets of the GRAT are distributed to the beneficiary (the “Remainderman”) or placed into a trust for the benefit of the beneficiary. www.skloff.com

Understanding a Grantor Retained Annuity Trust The Grantor can avoid gift taxes from transfers if the GRAT is “zeroed out”. Translation: the full amount transferred in is paid back to the grantor. www.skloff.com

Understanding a Grantor Retained Annuity Trust The minimum stream of payments for the term of the trust is determined by the Internal Revenue Code 7520 Interest Rate, oftentimes called a “hurdle rate”. The October 2009 rate of 3.2% is significantly lower than the 6.2% rate as recent as August 2006, making the GRAT more appealing now than many periods over the last 10 years. www.skloff.com

Understanding a Grantor Retained Annuity Trust The primary reason for establishing a GRAT is to remove net profits from the estate, with net profits defined as any excess return above the hurdle rate. The lower the hurdle rate, the easier it is to remove more assets from your estate. Translation: it is easier to earn more than 3.2% than it is to earn more than 6.2%. www.skloff.com

Example of Grantor Retained Annuity Trust (GRAT) Grantor Transfers Assets to GRAT with $1,000,000 10 Year Term Grantor Receives IRC Section 7520 Interest $ 320,000 Rate of 3.2% Each Year for 10 Years Grantor’s Assets Returned $1,000,000 But… www.skloff.com

Example of Grantor Retained Annuity Trust (GRAT) Over the 10 Years, Assets Grew to $2,200,000 After Grantor’s Original Asset Returned ($1,000,000) Remainderman Receives Balance $1,200,000 And… Grantor Removes Same Amount from Estate $1,200,000 Gift Tax and Estate Tax Free www.skloff.com

Conclusions Federal and state estate taxes can destroy wealth. GRATs remove net profits from the estate. Establishing a GRAT with a low hurdle rate increases the likelihood of removing a larger amount of assets from your estate – potentially eliminating your federal and state estate tax obligations. www.skloff.com

Aaron Skloff, AIF, CFA, MBA Chief Executive Officer Skloff Financial Group 908.464.3060 www.skloff.com

Stop Paying Taxes - Grantor Retained Annuity Trust (GRAT) - Aaron Skloff, AIF, CFA, MBA - CEO Skloff Financial Group

by Aaron Skloff, AIF, CFA, MBA on Nov 23, 2009

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Stop Paying Taxes - Grantor Retained Annuity Trust (GRAT) - Aaron Skloff, AIF, CFA, MBA - CEO Skloff Financial Group — Presentation Transcript