San Diego Estate Planning Lawyer Blog
In estate planning, we are usually talking about how an individual can create an estate plan that will pass on their assets to their beneficiaries, usually their children. With seniors living longer, many parents may need help from their children to pay for medical bills, caregivers, mortgage payments, etc. There are ways for a financially secure adult child to give financial aid to a parent free of gift taxes.
A GRAT, or grantor retained annuity trust, allows children to pass investment gains to their parents or grandparents without using their $ 5 million lifetime gift tax exemption. Under current law a child can set up a GRAT with a 2 year term. The trust pays the interest back to the child as if it were an annuity, based on an interest rate set by the IRS. The trust is usually set up with stock or other investment. Any appreciation in the underlying investment above the IRS interest rate passes to the GRAT beneficiary without being considered a gift. If the investment does not do well and returns less than the interest rate set by the IRS for GRATs, the beneficiaries get nothing.
President Obama is recommending imposing a 10 year minimum term on GRATs which would make them less attractive. If that happens, children, even without a GRAT, can still benefit their parents or grandparents in other ways, such as giving them a gift of cash. For example, in 2011, a gift up to $13,000 to any one individual is not taxed and will not dip into an individual’s lifetime gift exemption. Children can also pay their parents’ medical expenses if they pay the health care providers directly.
For more information on GRATs and other types of estate planning, contact us at Law Office of Scott C. Soady, A Professional Corporation for a complimentary consultation.