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AALU: Estate Freeze Series – Zeroed-Out GRATs

It’s Déjà Vu: Planning (Again) in the Face of Uncertainty – Estate Freeze Series: Zeroed-Out GRATs

Zero-gift planning techniques, like zeroed-out grantor retained annuity trusts (GRATs), have taken on renewed importance in legacy planning as a way to remove assets from the estate and preserve the federal unified credit for later income tax (basis) planning, if needed.

The zeroed-out GRAT can transfer asset appreciation without gift or estate tax, but only if the grantor survives the term of the GRAT and the assets transferred outperform a federally-set investment hurdle rate known as the “7520 rate.” The approach is particularly suited to today’s planning, since the GRAT’s unique features, including options to backload and delay annuity payments, variations in term selection, and the application of mandatory valuation adjustments, can enhance its flexibility to adapt to future changes and create opportunities to optimize the trust’s performance and probability of success.

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