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GRAT Planning in a Down Market

GRAT Planning in a Down Market

September 30, 2011

Authored by: Justin Flach and Doug Stanley

As I walked into the office, I noticed that the market was already down 100 points today.  It’s been doing that a lot lately.  And then it goes back up a little.  And then back down.   While the market is busy doing gymnastics and we’re all concerned about our portfolios and retirement plans, the one thing that shouldn’t get lost in the haze of bad economic news is that now is a great time to do some estate planning.

Setting aside taxable gifts for the moment, let’s focus on a strategy that works best when assets have a built in potential to increase in value and interest rates are low: the grantor retained annuity trust, or a GRAT.

At its most basic level, a GRAT works like this: you give

IRS Announces October 2011 Interest Rates

September 20, 2011

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The October 2011 7520 Interest Rate dropped to 1.4%.

The October 2011 Applicable Federal Rates can be found here.

With interest rates dropping, October may be  a good month to consider refinancing existing promissory notes.  Consider contacting your attorney if you have any existing notes with high(er) interest rates.

Intentionally Defective Irrevocable Trusts: A Great Way to Transfer Wealth, Especially In Low Interest Rate Environments

The current low interest rate environment provides excellent opportunities to transfer wealth to family members.   One approach commonly used to accomplish this goal is to sell assets to an intentionally defective irrevocable trust (“IDIT”).  An IDIT is an irrevocable trust for the benefit of someone other than the creator of the trust (the “Settlor”), perhaps Settlor’s descendants.  However, the “intentionally defective” component of the IDIT means that, for income tax purposes, the assets in the trust will continue to be treated as owned by Settlor.  Thus, Settlor’s sale of assets to the IDIT will not result in income tax consequences.   Additionally, Settlor’s payment of income taxes on the income earned by the IDIT provides an additional means of reducing Settlor’s taxable estate, while allowing the benefits of the income earned by the IDIT to benefit Settlor’s descendants.

Typically, Settlor will take back a promissory note for the assets

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