On October 28, 2020, Ani Hovanessian was quoted in Kiplinger's Personal Finance on flexible estate planning options.
One strategy Hovanessian suggests is using a grantor retained annuity trust (GRAT). You can transfer assets to a GRAT for a certain number of years, removing the appreciation from your estate without triggering any gift tax or having the assets count toward exemption limits.
Each year, you get a distribution, plus interest—the rate of which is set by the federal government and stood at a historic low of 0.4% as of October. Meanwhile, however, the assets in the GRAT continue to make money. For example, you can invest those funds in stocks and bonds and ideally earn a higher rate than 0.4%. Whatever is left at the end of the term, you can give tax-free to beneficiaries, typically into a child’s trust. “It’s virtually risk-free,” Hovanessian says. “You know your kids are going to get appreciation out of the GRAT that’s gift-tax-free to you.”
Another strategy for married couples to consider is a spousal limited access trust (SLAT). SLATs, like GRATs, let you move assets out of your estate, but assets moved into SLATs count toward exemption limits. If you find you need that money back, a SLAT allows for distributions to your spouse, but leaving the assets untouched preserves the value for future heirs.
Ultimately, Hovanessian notes, your estate-planning strategy must fit your unique situation. “There are trusts, and there are options out there, but really, individuals should speak to their advisers to create a personalized, well-thought-out plan of action,” she says.
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