The use by the founders of Facebook and Twitter of grantor retained annuity trusts (“GRATs”) to reduce estate taxes has been widely publicized. What many founders and entrepreneurs may not realize, however, is that the same techniques may be appropriate for companies with more modest growth potential and that considering the use of a GRAT at an early stage may be advantageous. GRATs have been discussed previously on the blog here.
In essence, a GRAT is a method to “freeze” the value of an asset at a particular point in time so that the future appreciation of that asset’s value escapes estate tax. A grantor contributes assets to a GRAT in exchange for the right to receive fixed annual payments from the GRAT for a number of years (not for life). The amount of each annual payment includes a return of a portion of the principal amount contributed plus an amount of interest (at a minimum rate required by the Internal Revenue Service). If the sum of the annual payments from the GRAT equal the original principal (valued at the time of the transfer to the GRAT) plus the aforementioned minimum interest, the GRAT is referred to as a “Zeroed Out” GRAT and there is no gift made when the asset is transferred to the GRAT. After the final annual payment is made to the grantor, all assets remaining in the GRAT are transferable to the beneficiaries of the GRAT (children, not grandchildren) without the payment of gift taxes and are not considered part of the grantor’s taxable estate (if he or she survives the term of the GRAT). (more…)
The 7520 rate for March 2014 has decreased to 2.2%.
The March 2014 Applicable Federal Interest Rates can be found here.
The 7520 rate for February 2014 has increased to 2.4%.
The February 2014 Applicable Federal Interest Rates can be found here.
The 7520 rate for January 2014 has increased to 2.2%.
The January 2014 Applicable Federal Rates can be found here.
The 7520 Rate for December 2013 is holding steady at 2.0%.
The December 2013 Federal interest rates can be found here.
The 7520 Rate for November 2013 is dropping to 2.0%.
The November 2013 Federal interest rates can be found here.
The 7520 rate for October 2013 is increasing to 2.4%.
The October interest rates are as follows:
The 7520 rate for September 2013 is staying steady at 2.0%.
The September interest rates are as follows:
The 7520 rate for August 2013 is set to jump from 1.40% to 2.0%.
The entire Revenue Ruling can be found here.