Wealth transfer occurs in a number of different ways, and sometimes there are too many choices. How do you decide which strategy to use? Start by educating yourself about some of the fundamentals of lifetime gifting.
Gifting strategies are used to minimize the tax burden on estates and preserve assets, since they promote the transfer of wealth across generations. There are five frequently used lifetime gifting strategies outlined in a recent article from Forbes, “5 Lifetime Gift Strategies For You And Your Family To Consider.” For families with significant assets, these need to be discussed with their estate planning attorney to see how they will fit with the family’s overall estate plan.
A grantor retained annuity trust (GRAT) is an irrevocable trust that can be a good choice, if you want to transfer hard-to-value assets. A GRAT also lets you keep your income stream, divide property interests and make discounted gifts to future generations. With a GRAT, the grantor transfers assets to a trust but maintains a right to an annual income stream, or annuity payment, for a specific period of time. The income stream’s value is deducted from the value of the transferred assets when determining the gift’s full taxable value. Anything left in the GRAT after the annuity period expires, is given to the trust’s beneficiaries without any more gift or estate taxes. However, if the grantor dies before the end of the trust term, the whole value of the trust will be included in the taxable estate (like the trust had never been created). Therefore, you can see how important it can be to carefully choose the term of the trust, so the grantor is likely to live beyond its termination.