Bernetich, Hatzell, & Pascu, LLC.

Grantor Personal Annuity Trust

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust which you create and to which you transfer income producing or appreciating property and receive an annual payment (an “annuity”) for the term of the Trust. At the end of the Trust term, all assets remaining in the Trust pass to the Trust beneficiaries. The GRAT can be for any term of years which you choose; however, it is necessary that you outlive the term of the Trust or the Trust assets will be included in your taxable estate. The Trust can be structured so that there are no gift tax consequences, called a “Zeroed-out GRAT.” By using a short term Zeroed-out GRAT, you would receive most of the assets in the trust back over a relatively short period of time in the form of annual payments. The amount of the annual payment made to you from the trust is determined using the Applicable Federal Rate (issued by the federal government and based on an average interest rate of U. S. Treasury obligations). All income and appreciation in excess of the Applicable Federal Rate passes to the beneficiaries of the Trust tax free. This technique works best when transferring high yielding or rapidly appreciating assets to the trust and is relatively more favorable if it is implemented when market rates of interest are low. There are a number of decisions that must be made when creating a GRAT such as the term of the GRAT, what assets to transfer, whether to use one or multiple GRATs (a separate GRAT for each asset).