When the American Taxpayer Relief Act of 2012 or ATRA was passed, the nation’s legislative bodies made certain remarks that implied that the rules made permanent by the act may only be temporary.
Add to that the fact that the 2013 proposed federal budgets could restrict established power estate planning strategies in use by many in order to end so-called tax loopholes.
The new proposed budget are considering changes that will more than likely affect Grantor Retained Annuity Trusts and, partly, Dynasty Trusts thus making both strategies potentially less appealing.
The new proposed budget are considering changes that will more than likely affect Grantor Retained Annuity Trusts and, partly, Dynasty Trusts thus making both strategies potentially less appealing.
Basically, any assets in the estate will be valued consistently for income tax purposes. This means that any appreciation in the value of the assets and gifts will be reported and taxed as required. The benefits of any up-front income taxes paid will be eliminated as well.
According to sources, the government is looking to impose severe restrictions that could endanger GRAT which became popular since ATRA was allowed to impose certain leniency on estate taxes. This strategy allows for the transfer of wealth while minimizing the gift taxes on the transfers.
The system is simple enough. The grantor or testator funds an irrevocable trust with appreciating assets and retains the interest annuities for a few years. This will allow a living grantor to transfer the assets left in the trust to their beneficiaries while gaining more transfer tax benefits for the estate as the assets held by the trust appreciates.
It is looking to require estates utilizing the GRAT to have a minimum term of 10 years and another 10 years for the maximum term to mature. As a result, there is a much higher chance that the grantor could die before the maturity and will not get to see the estate and gift tax benefits.
Basically, any assets in the estate will be valued consistently for income tax purposes. This means that any appreciation in the value of the assets and gifts will be reported and taxed as required. The benefits of any up-front income taxes paid will be eliminated as well.
The new budget is also looking at the possibility of generation-skipping transfer tax exemption to terminate after 90 years for Dynasty trusts which allows generational beneficiaries long after the death of the grantor. These trusts are relatively new in the state and its rise was triggered when perpetuity rules were repealed in New Jersey.
There are other strategies available that are not impacted by the new budget. A knowledgeable legal professional could provide more information on these effective options as well as how the new budget may affect current estate planning tools and strategies.
The system is simple enough. The grantor or testator funds an irrevocable trust with appreciating assets and retains the interest annuities for a few years. This will allow a living grantor to transfer the assets left in the trust to their beneficiaries while gaining more transfer tax benefits for the estate as the assets held by the trust appreciates.
It is looking to require estates utilizing the GRAT to have a minimum term of 10 years and another 10 years for the maximum term to mature. As a result, there is a much higher chance that the grantor could die before the maturity and will not get to see the estate and gift tax benefits.
Basically, any assets in the estate will be valued consistently for income tax purposes. This means that any appreciation in the value of the assets and gifts will be reported and taxed as required. The benefits of any up-front income taxes paid will be eliminated as well.
The new budget is also looking at the possibility of generation-skipping transfer tax exemption to terminate after 90 years for Dynasty trusts which allows generational beneficiaries long after the death of the grantor. These trusts are relatively new in the state and its rise was triggered when perpetuity rules were repealed in New Jersey.
There are other strategies available that are not impacted by the new budget. A knowledgeable legal professional could provide more information on these effective options as well as how the new budget may affect current estate planning tools and strategies.
Keywords: dynasty trusts, tax loopholes, grantor retained annuity trusts, american taxpayer relief act
About The Author
Victor Dela Casa
is a Filipino-Canadian who spent over a decade working as a business
professional in Canada. Worked in IT, finance, marketing, international
trade, public service, project management and the maritime industry.
Earned degree in Economics from the University of the Philippines and
Business Administration Honours from Eastern College. Currently based in
the Philippines and working as a professional writer for a
multi-national business processes firm.
| Share This Article |
|---|
Categories:
Business / Money,
Legal,
My Originals
