A GRAT Idea Whose Time Has Come

December 19, 2013 6:30 PM

Grantor retained annuity trusts are a method that the ultra rich use to avoid gift taxes. Many lawyers insist that these trusts are a cornerstone of any sound estate plan.
posted by reenum (21 comments total)

Where are you when we need you, Madame Guillotine?
posted by benzenedream at 6:35 PM on December 19, 2013 [2 favorites]

Owned by the government. I wouldn't be so quick to call for it, Mr. Robespierre.
posted by happyroach at 6:43 PM on December 19, 2013 [5 favorites]

They are indeed a cornerstone of estate planning. All things considered, they're the vanilla building blocks, to mix metaphors.
posted by jpe at 7:06 PM on December 19, 2013

Hey, the poor are free to use grantor retained annuity trusts, aren't they?
posted by el io at 7:17 PM on December 19, 2013 [1 favorite]

The "ultra rich" article mentions attorney's fees in the $5k-10k range. At that price, I wouldn't be confident in the ability of a layman to do the necessary paperwork pro se safely.
posted by sparklemotion at 7:22 PM on December 19, 2013

BTW, Obama has been pushing for several years to place some significant limitations on these puppies. I think the changes have been proposed every year since he entered office, in fact.
posted by jpe at 7:23 PM on December 19, 2013

A layman probably shouldn't be writing a will, much less anything more complicated than that. Not that I approve of this, but that's the system as it stands.
posted by Sequence at 7:26 PM on December 19, 2013

These are extremely common, and not just for the "ultra" wealthy. You can just about get one off the shelf. But while lawyer fees might be $5-10,000 for just that one GRAT, remember that this is probably part of a large and complicated estate plan that is easily 5-10x as expensive to put together. And, one way or another, you're paying a trustee every year, probably another $5,000 at minimum each year. Or it's wrapped into investment advisor fees. Or all these services are wrapped up in a "family office" with substantial overhead. It's an entire industry.
posted by 2bucksplus at 7:37 PM on December 19, 2013

Many lawyers insist that these trusts are a cornerstone of any sound estate plan.

"Many lawyers insist (on behalf of their clients, who benefit greatly)," etc. Somewhat begs the question, doesn't it? Of course GRATs are presently a "cornerstone" of "any sound estate plan" since apparently they are awesome tools for helping the very wealthy avoid taxes. If we repeal the relevant portions of the tax code and forbid their use, then they will no longer form a "cornerstone" or any other part of any sound (i.e., legal) estate plan, and the super rich will have to either pay their damn taxes or find another justification for not paying them.

I don't know why you'd ever listen to any tax attorney's opinion on tax policy when you know he's being dearly retained by clients with a huge stake in the outcome of the discussion.
posted by Joey Buttafoucault at 8:01 PM on December 19, 2013 [8 favorites]

that they are cornerstones is a statement about practice, the world as it is, and not policy, the world as it ought to be.
posted by jpe at 8:04 PM on December 19, 2013 [4 favorites]

find another justification for not paying them.

Anyone can find a justification for not paying taxes. It's finding an (arguably) legal method for not paying them that's the trick. Of course, the higher your taxes are, the greater your incentive for finding ways around them, and also the more money you can devote to that task. Hell, I believe that simply giving money to politicians is a relatively effective way to avoid taxes.
posted by spacewrench at 8:58 PM on December 19, 2013

I've a strong stomach for the general mayhem that is the news but stories like this make me slightly ill.
posted by Anitanola at 9:08 PM on December 19, 2013

Top 1%/35-42% of total wealth.

Why can't we just have a flat tax and take what's what from such people. Tax attorneys can find other work, right?
posted by skepticallypleased at 9:20 PM on December 19, 2013

We'll get to that right after we pass single payer and a guaranteed universal income.

should be any day now.
posted by jpe at 9:27 PM on December 19, 2013 [3 favorites]

I wouldn't be confident in the ability of a layman to do the necessary paperwork pro se safely.

As if the lawyers involved are creating the paperwork from scratch. The pro-se's skills should include plagiarism. Go to the Clerk of the Courts and pull what the lawyers are filing.

(See O'Connors http://www.jonesmcclure.com/ for an example of how lawyers produce their paperwork.)
posted by rough ashlar at 3:12 AM on December 20, 2013

these things don't get filed and aren't public record. that said, there are probably a number of them floating around the interwebs.
posted by jpe at 4:16 AM on December 20, 2013 [1 favorite]

Why can't we just have a flat tax and take what's what from such people. Tax attorneys can find other work, right?

Because that would be horribly regressive. Ask Russia how their Flat Tax is working to keep the state funded and the income disparity in check.
posted by Popular Ethics at 5:51 AM on December 20, 2013

Gracious, such upset. All that's happening here is that they're gifting assets that may appreciate in the future, and retaining an income right. They're also assuming a real risk; they're choosing to pay taxes now (at discount based upon the value of the retained interest) on assets that may depreciate in the future. Worse, if they'd waited until they died, the kids would have gotten the step-up in basis from the transfer on death, which you don't get here. That means the heirs have a lot more in capital gains then they would have otherwise.

Lastly, GRATs, GRUTs, and GRITs are not nearly as popular now as they used to be. Why? The Estate Tax and Gift Tax Lifetime Exclusion is $5,250,000. With pretty basic estate planning you can easily double that for a married couple. Unless you're worth over 10MM, you don't need to bother with any of this. The Sheldon Adelsteins and Waltons make for good article fodder, but if you're really concerned with the dangers of inherited wealth, you need to fix the lifetime exclusion amount. That's what will be causing the real damage in the future.

Well, that and the dynasty trusts. Those things are an abomination.
posted by leotrotsky at 6:16 AM on December 20, 2013 [4 favorites]

If you really believe in trickle-down economics, then you should be all in favor of estate taxes and opposed to any loopholes around them. Because really, estate taxes are one of the few taxes that encourage you to spend money.

If you oppose all other taxes on the grounds of trickle-down economics and also oppose estate taxes, then maybe you're just a greedy asshat.
posted by ckape at 10:08 AM on December 20, 2013 [2 favorites]

Why can't we just have a flat tax and take what's what from such people.

Because flat taxes disproportionately affect the poor. Jane is a billionaire who has an income of $100MM/year, pays 40% taxes. She still has $60MM.

Fred is a fry cook at a diner, makes $20K/year, pays 40% taxes. He now has $12K.

Bit of a disparity.

If you oppose all other taxes on the grounds of trickle-down economics and also oppose estate taxes, then maybe you're just a greedy asshat.

A foolish consistency is the hobgoblin something something
posted by feckless fecal fear mongering at 10:43 AM on December 20, 2013

I don't know why you'd ever listen to any tax attorney's opinion on tax policy when you know he's being dearly retained by clients with a huge stake in the outcome of the discussion.

Strictly speaking, ABA Model Rule 6.4 (which has been adopted by many states) allows attorneys to advocate for legal reforms that affect client interests, even detrimentally. Now, few attorneys would choose to threaten their bread and butter, but it is ethically allowed.
posted by jedicus at 7:15 PM on December 20, 2013