Illinois Granter Retained Annuity Trust (GREAT) is an estate planning tool that allows individuals to transfer assets while still receiving an annual annuity payment for a specified period of time. This trust type is commonly used by Illinois residents who wish to minimize their estate tax liabilities and ultimately pass on wealth to future generations. The Illinois GREAT functions by establishing a trust, with the granter named as the annuitant. The granter transfers assets, such as stocks, real estate, or closely-held business interests, into the trust while retaining the right to receive a fixed annuity payment annually for a predetermined term. At the end of the specified annuity term, any remaining assets in the trust are distributed to the beneficiaries, typically family members or loved ones, with minimal or no gift or estate tax consequences. There are several types of Illinois Grants, each with its own unique features and benefits: 1. Standard GREAT: This is the most common type of GREAT and allows the granter to transfer assets with a retained annuity payment for a specific term. The annuity payment is calculated using the IRS's Section 7520 rate, which is based on the month of the GREAT creation. 2. Zeroed-Out GREAT: In a zeroed-out GREAT, the annuity payment is set at a level that essentially reduces or eliminates any potential gift tax. The granter aims to transfer the appreciation of assets without triggering additional tax liabilities. 3. Rolling GREAT: A rolling GREAT involves creating multiple Grants, with each trust succeeding the previous one. By doing so, the granter keeps transferring assets while maintaining the ability to retain the annuity payment stream for an extended period. 4. Charitable GREAT: This type of GREAT includes a charitable organization as one of the beneficiaries, allowing the granter to receive an annuity payment while also making a charitable contribution in a tax-efficient manner. Illinois residents interested in establishing a Granter Retained Annuity Trust should consult with an experienced estate planning attorney who can guide them through the specific requirements and intricacies of Illinois law. By utilizing this trust type, individuals can plan effectively for the future, mitigate tax liabilities, and preserve wealth for their loved ones.
Illinois Grantor Retained Annuity Trust
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How to fill out Grantor Retained Annuity Trust?
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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.
If the grantor dies during the GRAT term, the value of the remainder interest in the trust is included in the grantor's taxable estate under either section 2036 (retained income, possession, or enjoyment of property) or 2039 (retained right to receive annuity in transferred property).
A GRAT is an irrevocable trust that allows the trust's creator known as the grantor to direct certain assets into a temporary trust and freeze its value, removing additional appreciation from the grantor's estate and giving it to heirs with minimal estate or gift tax liability.
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.
Because the grantor may use a valuation formula, a GRAT allows the grantor to transfer a difficult to value asset without a significant risk of unexpected gift tax. The following is an example of how a valuation formula will reduce the risk of unexpected gift tax consequences when dealing with hard to value assets.
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).
Depending on the type of asset being transferred, clients may also consider creating GRATs of various terms. While we still remain in a low interest rate climate, GRATs continue to be particularly effective planning tools to gift assets without using any gift tax exemption.
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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.
GRATs are expressly permitted under the Internal Revenue Code. If they fail, you incur only a minimal tax cost and the professional fees associated with the project. If they succeed, you can transfer significant wealth to your beneficiaries, essentially gift-tax free.