Florida Granter Retained Annuity Trust (GREAT) is a specialized estate planning tool that allows individuals to transfer assets to their chosen beneficiaries while retaining a certain level of control over those assets and potentially minimizing estate taxes. This trust enables the granter (the person creating the trust) to transfer assets, such as securities, cash, or real estate, into the trust for a specified period of time. During this time, the granter receives an annual annuity payment from the trust, which is calculated based on the value of the assets initially transferred, the length of the annuity term, and prevailing interest rates. One significant advantage of using a GREAT is the potential to reduce estate taxes. By placing assets into the trust, the granter effectively freezes their value for estate tax purposes. If the assets appreciate at a rate higher than the applicable federal rate, the excess growth can be passed on to beneficiaries without incurring additional estate taxes. The annuity payments received by the granter are subject to income tax, but because the payments are structured to return the initial value of the transferred assets over the annuity term, the tax impact can be mitigated. Additionally, any remaining assets in the trust after the annuity term ends are transferred to the beneficiaries free of estate and gift taxes, further enhancing the tax efficiency of a GREAT. In Florida, there are different types of Granter Retained Annuity Trusts available. These include: 1. Standard Granter Retained Annuity Trust (GREAT): This is the most common type of GREAT. It operates as described above, with the granter receiving fixed annuity payments for a predetermined term. 2. Zeroed Out Granter Retained Annuity Trust: In this type of GREAT, the annuity payments are set in such a way that the present value of the annuity is equal to the value of the assets transferred into the trust. This effectively reduces the taxable gift to zero, making it a useful estate planning strategy for individuals who have fully utilized their lifetime gift tax exemption. 3. Rolling GREAT: A rolling GREAT allows the granter to continuously create new Grants, transferring assets into each trust after the previous one terminates. This strategy can be effective in leveraging the potential future appreciation of assets. 4. Charitable Lead Annuity Trust (FLAT): While not strictly a GREAT, a FLAT is a variation of a GREAT that includes a charitable component. In a FLAT, the annuity payments are made to a charitable organization for a specified term, after which the remaining assets pass to non-charitable beneficiaries. This type of trust can provide both income tax and estate tax benefits. It is crucial to consult with an experienced estate planning attorney or financial advisor to determine the most suitable type of Florida Granter Retained Annuity Trust for your individual circumstances and goals.
Florida Grantor Retained Annuity Trust
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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.
In other words, during the initial term of the GRAT (the term that the Grantor is to receive the annuity payments) the Grantor will be taxed on all of the income earned by the GRAT during each such year, including capital gains.
Pros. There are a number of benefits to setting up a GRAT. For one, the annuities can provide a steady stream of income for those who may need it in retirement. However, the main benefit of establishing a GRAT is the potential to transfer large amounts of money to a beneficiary while paying little-to-no gift tax.
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.
GRATs are irrevocable trusts that last for a specific period of time of at least two years. The term you choose depends on your goals and expectations for asset growth potential, but we typically recommend a term between two and five years.
In a GRAT, you receive a fixed amount from year to year (an annuity). In a GRUT, by contrast, you receive an amount equal to a fixed percentage of the trust assets (a unitrust).
The annuity amount is paid to the grantor during the term of the GRAT, and any property remaining in the trust at the end of the GRAT term passes to the beneficiaries with no further gift tax consequences.
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.
If the income you receive is a set dollar amount and does not fluctuate each year, the trust is a GRAT (grantor retained annuity trust). If the income is a percentage of the trust assets and the amount of income you receive fluctuates each year, the trust is a GRUT (grantor retained unitrust).
Grantor-Retained Unitrust (GRUT) is a form of Grantor-Retained Trust set up by individuals to reduce taxes on an estate. To create a GRUT, a grantor creates an irrevocable trust that is for a limited period of time, paying taxes at the outset of the trust.