At its core, a Grantor Retained Annuity Trust (GRAT) is a tool used to make a tax-free gift. And it may be just the right time to consider setting one up for yourself.

Here's how it works: the donor creates a trust which calls for certain payments to be made to themselves over a period of time, and then whatever is left in the trust passes to the beneficiaries named by the donor. 

Specifically, the tax-free part is accomplished by a complex calculation that "zeros out" the GRAT. Zeroing out simply means that the anticipated value of the remaining assets in the trust (the part that is paid to the beneficiaries) is expected to be zero. 

A traditional IRA allows money to grow tax deferred (not tax free).  But, eventually, when that money is withdrawn from the IRA, it is subject to income tax.  IRAs are subject to required minimum distributions. The SECURE Act changed the minimum distribution requirements for inherited IRAs. 

Historically, one could spread out the distributions of the inherited IRA over their own lifetime. After the SECURE Act, a non-spouse who inherits an IRA must withdraw the entire amount within 10 years. Exceptions to the 10-year rule are minor children, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the decedent.

As an Elder Law attorney, these uncertain times have become increasingly worrisome to myself and my clients. Most of my clients are at-risk community members as they are over the age of 60, many have underlying health concerns and/or are residing in a long-term care or assisted living facility. COVID-19 has had a major impact on not only my clients’ daily lives and those of their caretakers, but all at-risk community members. 

In addition to the dangers of the virus itself, COVID-19 has presented the elderly with another potential risk: fraud. With that in mind, I want to share a couple concerns we have been experiencing in our practice and helpful tips to combat them.

We had a client contact us recently who was reasonably upset after discovering a party they'd been working with “breached” their Non-Disclosure Agreement (NDA). The said party was a prospective buyer who told one of our client’s customers they were buying our client’s business (I think you can see the problem here). Unfortunately, our team at Gutwein Law wasn't given a chance to review the document prior to our client signing the NDA, and that "breach" of contract wasn't really a breach after all.

Whether you're the "gifter" or the "giftee", it's no secret you want to make the most of a gift. But Federal Estate Tax Laws can make your ideal gifting process a little hard to navigate, to say the least. In recent years, the tax laws have increased the exemption amount (the amount someone can pass without paying any Federal Estate Tax) to approximately $11.2M per person, while the annual gift tax exclusion has increased to $15,000 per person.

While that's a change in your favor, I think it's important to talk through the implications of a gift versus an inheritance. An inheritance, which is a transfer that occurs upon death of the gifter, results in something called “stepped up basis.”  A gift made during the gifter’s lifetime results in “carryover basis.”

Let's take a look at a real-world example to help make sense of these two ideas: