If you are interested in ensuring that the beneficiaries you have selected receive the fruits of your hard labor without taxes taking from your lifetime of work, then you need to speak to an attorney. An attorney familiar with grantor retained income trusts and qualified personal residence trusts in Palm City can help you ensure that your estate is not unduly taxed. Reach out today for a confidential consultation with an experienced trusts lawyer.
A GRIT is a specific type of irrevocable trust that allows the grantor to transfer assets into trust but still retain the right to receive income from the trust for a set period of time. A GRIT is one of many types of trusts that allow the grantor to retain an interest in an irrevocable trust. Others include a QPRT (Qualified Personal Residence Trust), GRAT (Grantor Retained Annuity Trust), and a GRUT (Grantor Retained Unitrust). With all grantor-retained trusts, one of the primary benefits is the ability to reduce the amount of assets includible in the grantor’s taxable estate for estate tax planning purposes while still allowing the grantor to retain an interest during the initial term of years and select a desired beneficiary to receive trust assets after the end of the term. But, in order to realize those tax benefits, the grantor must outlive the initial term.
Commonly, grantor retained income trusts are typically used in Palm City either when a client is concerned about estate tax consequences or when the grantor wishes to gift property to a beneficiary but retain an interest for a period of time.
A QPRT is an irrevocable retained interest trust whereby the grantor gifts a personal residence (which could be a primary residence or a vacation property) into trust but retains a right to use the residence for a specified number of years. The grantor names one or more beneficiaries to receive the property at the end of the term.
The formation of a QPRT typically involves a gift of the residence to the trust, with the property then being leased back to the grantor/term-holder for a fair market rent. The grantor will declare the gift on Form 709 (gift tax return), and provided that the grantor has not exhausted his/her Unified Credit (which allows tax-free gifts of up to $11.4M during the life of the grantor in 2019) and wishes to use the credit, no gift tax will be owed. The rental income received by the trust is taxable at the grantor’s income tax rate if structured as a grantor trust. Once the residence has been transferred to the trust, the value of the residence, as well as future appreciation, is removed from the grantor’s estate for estate tax purposes, provided that the grantor outlives the initial term. This transfer of wealth out of the grantor’s estate can be a significant benefit, particularly if the value of the residence is expected to experience appreciation.
In a GRIT, the grantor will make a gift of assets to an irrevocable trust but retain an income interest for a set term. That income interest will be valued and subtracted from the value of assets contributed to the trust to determine the value of the gift. If the grantor has not exhausted his/her Unified Credit and wishes to take advantage of the credit for purposes of the gift, then the grantor will owe no gift tax for the transaction. However, the grantor will still need to file a Form 709 (gift tax return). Keep in mind that the grantor must outlive the trust term in order to reap estate tax benefits.
The requirements of a qualified personal residence trust are detailed in the regulations of Section 25.2702 and include the following:
For a more comprehensive review of how requirements of a qualified personal residence trust or grantor retained income trust in Palm City can affect eligibility, grantors need to speak with an attorney.
Grantor retained interest trusts and qualified personal trusts in Palm City could allow a grantor or speculative party to avoid unnecessary estate taxes. To better your odds at protecting your assets, you need to speak with an attorney. You deserve to preserve the fruits of your labors, reach out today.