Barbara M. Pizzolato Southwest Florida Estate Planning Attorney

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1 WHAT IS A FLORIDA GRANTOR RETAINED ANNUITY TRUST? If you have been particularly successful from a financial standpoint, you must consider estate tax efficiency strategies. This tax can take a significant bite out of your legacy as it is being passed along to your loved ones because it carries a hefty 40 percent maximum rate. Barbara M. Pizzolato Southwest Florida Estate Planning Attorney

2 If you have been particularly successful from a financial standpoint, you must consider estate tax efficiency strategies. This tax can take a significant bite out of your legacy as it is being passed along to your loved ones because it carries a hefty 40 percent maximum rate. How do you determine if you are exposed to the estate tax? The dividing line is determined by the federal estate tax exclusion. In 2016, the amount of the federal estate tax exclusion stands at $5.45 million. This represents a $20,000 increase over the $5.43 million that was in place last year. Each year there are inflation adjustments, so you may see a slightly higher figure year-byyear going forward. What Is a Florida Grantor Retained Annuity Trust? 2

3 To avoid the estate tax, you may naturally consider lifetime gift giving. This was something that people used to do shortly after the estate tax was enacted in 1916, but we have had a gift tax in place continuously since 1932, so this loophole is long closed. The gift tax and the estate tax are unified, so the exclusion applies to lifetime gifts along with the estate that will be passed on after you are gone. The estate tax is only applicable on transfers to anyone other than your spouse because there is an unlimited marital deduction. Unlimited tax-free asset transfers between citizen spouses are allowed. One estate tax efficiency strategy is the zeroed out grantor retained annuity trust or What Is a Florida Grantor Retained Annuity Trust? 3

4 GRAT strategy. Let's look at the details. Appreciable Assets The zeroed out grantor retained annuity trust strategy can be effective if you have assets in your possession that are probably going to appreciate considerably into the foreseeable future. To implement this strategy, you convey the appreciable assets into the GRAT. In the trust declaration, you name a beneficiary who would assume ownership of any remainder that is left in the trust after the conclusion of the term. What Is a Florida Grantor Retained Annuity Trust? 4

5 A taxable gift may be given to the beneficiary eventually, so the IRS adds anticipated interest accrual to the value of the trust. The hurdle rate is used; this is equal to 120 percent of the federal midterm rate. As the grantor of the trust, you decide on the length of the trust term when you establish the trust. You accept annuity payments throughout this term. The idea is to calculate the total annuity payments to equal the entire taxable value of the trust as it has been calculated by the Internal Revenue Service. If the earnings of the trust were exactly equal to the hurdle rate that was applied by the IRS, there would be nothing left to distribute to the beneficiary at the conclusion of the term. At the outset, you endeavored to fund the trust with highly appreciable assets in an effort to make this strategy successful. There would be something left in the trust after the expiration of the term if the assets outperform the hurdle rate. Federal interest rates have been historically low for an extended period of time, so this strategy has been quite viable over recent years. The beneficiary would ultimately assume ownership of any remainder that is left in What Is a Florida Grantor Retained Annuity Trust? 5

6 the trust free of any gift tax consequences. Summary People who are in possession of considerable wealth have to be concerned about the federal estate tax. The death tax is not applicable on transfers between spouses who are American citizens, but it can be a factor on transfers to others that exceed $5.45 million. If you are in possession of highly appreciable assets, the zeroed out grantor retained annuity trust strategy can potentially get assets into the hands a beneficiary in a tax efficient manner. To obtain more information about GRATS and other wealth preservation tools, schedule a consultation with a licensed estate planning attorney. What Is a Florida Grantor Retained Annuity Trust? 6

7 References Internal Revenue Service Gift-Taxes Forbes What Is a Florida Grantor Retained Annuity Trust? 7

8 About the Author Barbara M. Pizzolato In 27 years as a practicing attorney, Barbara M. Pizzolato has always put her clients first. She is more of a counselor than a lawyer, having established longlasting, personal relationships with many clients. In fact, one of her first clients is the Godfather of her daughter. What does this mean for you? In choosing Ms. Pizzolato as your estate planning attorney, you are gaining a friend and confidant as well as a highly professional, experienced authority on estate planning law. She will take the time necessary to get to know you and your family, gain a thorough understanding of your unique situation, and work closely with you to design and implement a comprehensive estate plan. After obtaining her B.A. from Stony Brook University and J.D. from New York Law School, Ms. Pizzolato practiced as both a litigator and an estate planning attorney. Many of her litigation and corporate clients asked her to handle their estate and business planning needs as well, and over time she found the latter more rewarding. Working with families and business owners to meet their life-long goals and most-pressing concerns brings her a great deal of personal satisfaction. In essence, Ms. Pizzolato has chosen to practice an area of law focused on collaboration rather than conflict. She has represented and assisted thousands of clients with their estate planning, business succession planning, probate, and trust administration needs. While her main office is located in Fort Myers, FL, Ms. Pizzolato is also licensed to practice law in New Jersey, New York, and Connecticut. This flexibility has proven particularly valuable for her Florida estate planning clients with assets in multiple states. So, too, has her willingness and ability to handle client planning needs over the phone and by . In fact, some of her long-term corporate clients have never actually met Ms. Pizzolato in person, but given her personable nature and commitment to serving as a counselor for life, these clients have also become close friends. Barbara M. Pizzolato, P.A New Brittany Blvd Suite 402 Fort Myers, FL Phone: Tamiami Trail North Suite 253 Naples, FL Phone: What Is a Florida Grantor Retained Annuity Trust? 8