Estate planning is an essential part of managing your wealth and ensuring that your loved ones are taken care of in the future. One effective strategy that has gained popularity in recent years is the use of rolling Grantor Retained Annuity Trusts, commonly known as rolling GRATs. In 2024, this strategy offers a smart way to minimize estate taxes, taking advantage of the current estate tax exemption and anticipating future changes in tax laws as a revocable living trust lawyer can further explain:
Understanding GRATs
A Grantor Retained Annuity Trust (GRAT) is a type of irrevocable trust that allows you to transfer assets to your beneficiaries with minimal gift or estate tax consequences. When you set up a GRAT, you transfer assets into the trust and retain the right to receive an annual annuity payment for a specified number of years. At the end of this term, any remaining assets in the trust pass to your beneficiaries.
Why Rolling GRATs?
As our friends at Stuart Green Law, PLLC can explain, rolling GRATs involve setting up a series of short-term GRATs, typically lasting two to three years each. Instead of placing all your assets into one GRAT, you create multiple GRATs over time, “rolling” them forward as each term ends. This strategy has several advantages:
1. Mitigating Risk: By spreading your assets across multiple GRATs, you reduce the risk associated with the performance of the trust assets. If one GRAT underperforms, the others may still succeed.
2. Taking Advantage Of Market Conditions: Short-term GRATs allow you to capitalize on favorable market conditions. If the assets in a GRAT appreciate significantly during its term, the excess growth can be transferred to your beneficiaries tax-free.
3. Flexibility: Rolling GRATs provide flexibility in estate planning. You can adjust the amount and timing of assets placed in each GRAT based on your financial situation and changes in tax laws.
2024 Estate Tax Exemption
In 2024, the federal estate tax exemption amount is $13.61 million per individual. This means that you can transfer up to $13.61 million of your estate without incurring federal estate taxes. However, it’s important to note that the Tax Cuts and Jobs Act (TCJA) of 2017, which significantly increased the estate tax exemption, is set to sunset in 2026. Unless extended, the exemption amount will revert to a lower level, potentially increasing the estate tax burden on your heirs.
Benefits Of Rolling GRATs In 2024
With the high estate tax exemption currently in place, 2024 is an excellent year to consider rolling GRATs as part of your estate planning strategy. Here are some key benefits:
1. Maximize Tax Savings: By using rolling GRATs, you can transfer significant wealth to your beneficiaries with minimal gift tax implications, leveraging the high exemption amount before it potentially decreases in 2026.
2. Lock In Low Interest Rates: The annuity payments you receive from a GRAT are based on the IRS Section 7520 interest rate, which is relatively low in 2024. Lower rates make it easier for the GRAT to outperform, allowing more assets to pass to your beneficiaries tax-free.
3. Protect Against Legislative Changes: With the possibility of the TCJA sunsetting in 2026, rolling GRATs offer a proactive approach to estate planning. By establishing GRATs now, you can lock in the current favorable tax conditions and mitigate the impact of future changes.
Setting Up Rolling GRATs
Creating rolling GRATs requires careful planning and professional guidance. Here are the general steps:
1. Consult with An Estate Planning Attorney: An experienced attorney can help you design and implement a rolling GRAT strategy tailored to your financial goals and family needs.
2. Identify Suitable Assets: Select assets that are likely to appreciate over the term of the GRAT. These could include stocks, real estate, or interests in a family business.
3. Establish The GRATs: Work with your attorney to create a series of short-term GRATs, transferring the chosen assets into each trust.
4. Monitor And Adjust: Regularly review the performance of your GRATs and make adjustments as needed. This may involve rolling the assets into new GRATs as each term ends.
Rolling GRATs offer a powerful estate planning strategy in 2024, allowing you to transfer wealth to your beneficiaries while minimizing estate taxes. By taking advantage of the current high estate tax exemption and preparing for potential changes in 2026, you can ensure that your loved ones benefit from your hard-earned assets. As always, consulting with a knowledgeable estate planning attorney is crucial to successfully implementing this strategy and achieving your financial goals.