I had an interesting discussion a week or so back about the "pre-funding" of GRATs (Grantor Retained Annuity Trusts for the uninitiated). Many experts believe that Congress will significantly limit the effectiveness of GRATs either by requiring a minimum term of 10 years or requiring a taxable gift to be made upon the funding of the GRAT or most likely both. This change could occur very soon. Accordingly, for someone wanting to do a GRAT this year, it is important to create and fund the GRAT before this new law is passed.
But, what if you don't have the right asset to fund the GRAT right now? One option might be to go ahead and create and fund a GRAT right now with cash or some other asset. Then, two or three months down the road when you have the right asset to put in the GRAT, you can swap this asset for the cash. If done correctly, this should not have any effect on the ability of the GRAT to qualify under IRC Section 2702. If you plan to use this method, however, it is important that the grantor retains the right to substitute property of equivalent value.
This is a pretty creative way to protect yourself against this potential change in the law, even if you are not ready to fund a GRAT right now.
No comments:
Post a Comment