What is the estate tax inclusion period?

Section 2642(f)(3) provides that for purposes of § 2642(f), the term “estate tax inclusion period” means any period after the transfer described in paragraph (1) during which the value of the property involved in such transfer would be includible in the gross estate of the transferor under chapter 11 if he died.

Does a grat file a tax return?

With respect to income taxes, the grantor is treated as the owner of the assets during the GRAT term and reports all income earned by the GRAT on his individual income tax return. To avoid having to file its own fiduciary income tax return, the GRAT should not apply for a separate taxpayer identification number.

What is a zeroed out Grat?

A Zeroed-Out GRAT is a GRAT where the annuity payable to the trust’s creator is set in a manner that results, mathematically, in a net gift of zero.

When did automatic allocation of GST exemption start?

For transfers made after December 31, 2000, a transferor’s unused GST exemption will be automatically allocated to lifetime transfers that are “indirect skips” (as well as to direct skip transfers).

How can we avoid generation-skipping tax?

To make up for the taxes that may be avoided by skipping one generation, the Internal Revenue Service (IRS) imposes a second layer of tax on gifts and bequests above the estate and lifetime gift exclusion. It means that the GSTT is only due when a beneficiary receives amounts in excess of the GST estate tax credit.

How do you calculate inclusion ratio?

Computing the inclusion ratio for trust distributions can be complicated. Lead unitrusts: IR = 1 – (GST exemption used / (principal placed in trust – gift tax deduction)). Lead annuity Trusts: IR = (principal at termination – GST adjusted exemption) / principal at termination.

What happens to a GRAT If the grantor dies?

A GRAT that pays the annuity amount to the grantor during his or her lifetime, and to his or her estate if the grantor dies during the term of the GRAT will be included in the value of the retained annuity interest.

Is a GRAT revocable or irrevocable?

irrevocable trust
What is a GRAT and why is it advantageous now? A grantor retained annuity trust, better known as a “GRAT,” is an irrevocable trust that pays an annuity amount to the grantor for a set period of years, after which the remainder passes to or for the benefit of children or others.

How are GRAT payments taxed?

GRATs are taxed in two ways: Any income you earn from the appreciation of your assets in the trust is subject to regular income tax, and any remaining funds/assets that transfer to a beneficiary are subject to gift taxes.

What happens at the end of a GRAT?

The annuity amount is paid to the grantor during the term of the GRAT, and any property remaining in the trust at the end of the GRAT term passes to the beneficiaries with no further gift tax consequences.

When did automatic allocation rules start?

In 2001 the GST tax automatic allocation rules were changed so that trusts for the benefit of children and grandchildren could qualify for automatic allocation of GST tax exemption if the trust meets certain criteria and is a “GST Trust” as defined in the Internal Revenue Code.