Trusts are excellent tools for estate planning. Some people use them to help protect beneficiaries, secure trusts for children with disabilities and provide benefits for tax purposes. Like most people, you may not want to part with your assets in case you need them during the remainder of your lifetime. In this case, a grantor retained annuity trust could benefit you. This type of trust allows you to pass on assets without giving up control of them.
What is a grantor retained annuity trust?
A grantor retained annuity trust, or GRAT, is an irrevocable trust that uses annuity payments to transfer assets. To take advantage of these trusts, people transfer assets into them, and the grantor retains an interest in the property. An annuity is then paid back to the owner at a specified rate, fixed or variable, for a certain period of time.
The annuity is usually calculated in a way that when the trust expires, whatever assets remain pass on to beneficiaries free of gift tax. If you transfer your property into the trust while retaining interest in it, then upon expiry of the trust, all the assets will go to you or your beneficiaries without getting taxed.
What are the benefits of a GRAT?
There are several benefits of using trusts to transfer assets. Not only do they avoid gift taxes, but the person creating the trust retains control over it during his or her lifetime. Besides control and tax benefits, these trusts also offer asset protection. This means that trusts can protect your assets from creditors and other claimants.
Lastly, grantor retained annuity trusts provide peace of mind. You can sleep tight knowing that your assets are in safe hands, and that you will still have access to them if necessary. Just remember that a GRAT is irrevocable by law, which means that it cannot get modified or revoked once created.
In conclusion, trusts can be very useful tools for estate planning and asset protection. They offer numerous benefits while protecting your loved ones from taxation or other liabilities after you pass on.