Grantor-retained annuity trusts

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A recent article in Bloomberg estimates that certain estate planning techniques such as the grantor-retained annuity trust (GRAT) has cost the US federal government more than $100bn (£60bn) since the year 2000. The proof of these tax savings is calculated based upon filings that are made with the US Securities and Exchange Commission (SEC). As an example, the Bloomberg article highlights casino magnate Sheldon Adelson who has given at least $7.9bn to his heirs by using a series of GRATs using calculations based on SEC filings, all of which will save him and his estate roughly $2.8bn in US tax.

The Bloomberg article also discusses the popularity of the GRAT by detailing other individuals who have used GRATs, such as Facebook founder Mark Zuckerberg and Goldman Sachs chief executive officer Lloyd Blankfein. Although GRATs created by billionaires illustrate pronounced tax savings and make for interesting headlines in newspapers, the GRAT is a very common and effective estate planning technique for regular US citizens seeking to reduce their US federal estate and gift tax.

At a very basic level, a GRAT provides an alternative means to transfer property to selected beneficiaries, with minimal US federal gift tax owed, and results in substantial tax savings. With the US federal estate and gift tax currently taxed at a rate of 40 per cent, the tax savings can be tremendous…

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