Irrevocable Trust

Gifting assets during your lifetime is an important component of an effective estate plan. Merely gifting outright ownership of assets to family members fails to utilize advanced planning techniques that allow for the leveraging of gifts through the use of split interest transfers, where a donor retains an interest in gifted property for a period of time. At the end of the time period, the property is no longer included in the donor’s estate for estate tax purposes. The IRS provides discount rates to use when computing the values of the present and future interests in a split interest gift. Assets expected to appreciate significantly in excess of the IRS rate are most effective in split interest gifting. As a result, closely held business interests with a history of consistent returns can work well.

Several types of trusts can be used to leverage these tax benefits, including:

Grantor Retained Annuity Trusts (GRAT)

In this trust, the donor transfers property to a trust, retaining the right to a fixed annuity for a term of years, payable annually.

Grantor Retained Unitrust (GRUT)

Similar in most respects to a GRAT, the donor receives an annual payment determined as a percentage of the value of property in the GRUT each year, known as a unitrust. Where the assets increase in value, a GRUT pays the donor a larger amount based on the increased asset value.

Qualified Personal Residence Trust (QPRT)

In this type of trust, the trust owns a personal residence for a term of years.

Numerous other forms of trusts, including intentionally defective grantor trusts, are designed to achieve various estate planning objectives.

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