Ohio Granter Retained Annuity Trust (GREAT) is a legal entity in Ohio that allows a granter to transfer assets to a trust while retaining an annuity payment for a fixed period. It is an effective estate planning tool that enables individuals to minimize estate taxes while providing potential gift tax benefits. A typical Ohio GREAT involves a granter who funds the trust with assets, such as securities, real estate, or business interests while retaining the right to receive a fixed annuity payment annually for a predetermined term. These annuity payments can be set up for a specific number of years or for the duration of the granter's life. At the end of the annuity term or upon the granter's passing, the remaining trust assets, if any, pass to the named beneficiaries, typically family members or other loved ones. By establishing an Ohio GREAT, the granter may potentially reduce estate taxes. This is achieved as the taxable gift is calculated by subtracting the present value of the retained annuity interest from the total value of assets transferred to the trust. Consequently, if the assets' growth during the trust term exceeds the IRS Section 7520 rate, the excess appreciation can pass to the beneficiaries without triggering additional gift tax liability. Thus, Ohio Grants can be an excellent strategy for transferring wealth to the next generation with minimal tax consequences. While the Ohio GREAT is a general term, there are different factors to consider when tailoring it to individual needs. Some common variations include: 1. Zeroed-out GREAT: With this type of GREAT, the annuity payments are set in a manner to precisely consume the value of the assets transferred to the trust, resulting in a near-zero or nominal taxable gift. The goal is to maximize the potential tax benefits while retaining control over the assets. 2. Rolling GREAT: In a rolling GREAT, a series of Grants are set up, one after another, with each GREAT commencing after the expiration of the previous term. This strategy can potentially amplify the tax-saving benefits by allowing the granter to continue transferring assets with minimal gift tax implications. 3. Charitable GREAT: This type of GREAT incorporates a charitable beneficiary alongside the non-charitable beneficiaries. It allows the granter to support a charitable cause while enjoying potential income tax deductions and reducing the taxable gift value. In summary, an Ohio Granter Retained Annuity Trust (GREAT) is a versatile estate planning tool that offers significant tax advantages. Whether it is a zeroed-out GREAT, rolling GREAT, or charitable GREAT, each type can be tailored to meet specific objectives. Consulting with a qualified attorney or financial advisor is recommended to determine the most suitable Ohio GREAT strategy for individual circumstances.
Para su conveniencia, debajo del texto en español le brindamos la versión completa de este formulario en inglés. For your convenience, the complete English version of this form is attached below the Spanish version.Ohio Fideicomiso de anualidad retenida por el otorgante - Grantor Retained Annuity Trust
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Grantor Retained Income Trust, Definition A grantor retained income trust allows the person who creates the trust to transfer assets to it while still being able to receive net income from trust assets. The grantor maintains this right for a fixed number of years.
Grantor retained annuity trusts (GRAT) are estate planning instruments in which a grantor locks assets in a trust from which they earn annual income. Upon expiry, the beneficiary receives the assets with minimal or no gift tax liability. GRATS are used by wealthy individuals to minimize tax liabilities.
A GRAT is an irrevocable trust, and when you transfer property to the GRAT, you are making a taxable gift to your beneficiaries.
GRATs are taxed in two ways: Any income you earn from the appreciation of your assets in the trust is subject to regular income tax, and any remaining funds/assets that transfer to a beneficiary are subject to gift taxes.
Like a GRAT, an IDGT is an irrevocable trust. Unlike a GRAT, the grantor typically sells assets to the trust rather than gifting them, in order to avoid triggering gift tax. Assets sold to an IDGT are not considered to give rise to a capital gain, which means that no capital gains tax is owed.
With respect to income taxes, the grantor is treated as the owner of the assets during the GRAT term and reports all income earned by the GRAT on his individual income tax return. To avoid having to file its own fiduciary income tax return, the GRAT should not apply for a separate taxpayer identification number.
To implement this strategy, you zero out the grantor retained annuity trust by accepting combined payments that are equal to the entire value of the trust, including the anticipated appreciation. In theory, there would be nothing left for the beneficiary if the trust is really zeroed out.
Since a GRAT is a grantor trust for income tax purposes, you will report the trust's taxable income and deductions on your personal income tax return as if you still owned the trust assets directly. A grantor trust is disregarded for income tax purposes and will not pay taxes.
Beneficiaries of a trust typically pay taxes on the distributions they receive from the trust's income, rather than the trust itself paying the tax. However, such beneficiaries are not subject to taxes on distributions from the trust's principal.
Tax Implications of the GRAT During the term of the GRAT, the Donor will be taxed on all of the income and capital gains earned by the trust, without regard to the amount of the annuity paid to the Donor.