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What trust can one use to transfer assets growing in value?

People in New Jersey who are considering their estate planning options will want to ensure that their most valuable assets are protected. There are certain properties such as business shares, homes, stocks and more that can be reasonably be expected to appreciate. These can be placed into a trust to pass them along to the heirs. One trust that can be used for this purpose is the grantor retained annuity trust (GRAT). Knowing how a GRAT works is essential for those who are considering their alternatives with these types of assets.

The GRAT is an irrevocable trust that lets a person transfer the appreciation to an heir or other beneficiary and have the chance to prevent them from having to pay the gift tax or estate tax (should it remain law). Without a GRAT, the person would have to pay taxes on the appreciation. It is important to remember that there is no way to revoke a GRAT. What a GRAT does is lower or end the taxes on a gift.

A GRAT basically freezes the testator's estate. If the person is still alive when the annuity comes to term, the assets that are still in the GRAT after the final payment is made will pass to the heirs and not be subjected to taxes when the testator dies. For a person who owns a valuable stock position that is expected to grow consistently and substantially, a GRAT can allow the appreciation to pass along to the heirs without having to face the costs that generally come with such a stock position and its increasing value.

A GRAT is just one example of how trusts can be used to ensure that heirs get property that a testator wants them to get and simultaneously shield them from onerous tax burdens when gifting them or at the time of the person's death. Discussing the possible options for trusts with an attorney is a vital aspect of estate planning and should not be ignored.

Source: Forbes, "How To Transfer Appreciating Assets To Heirs," Russ Alan Prince, Oct. 23, 2017

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