The Elder and Disability Law Firm, APC
Specialized Trusts Can Save Estate Taxes
If your estate is in taxable territory you must look for ways to transfer assets in a tax-free manner. Though there is a gift tax in place there are ways to facilitate tax-free giving if you take the appropriate actions. One strategy that it is sometimes implemented involves zeroing out a grantor retained annuity trust.
To provide a brief explanation, after funding the trust you as the donor receive annuity payments annually. But, you name a family member as the beneficiary. This beneficiary would assume ownership of any funds that may happen to remain in the trust after the trust term expires.
Because of the potential for the transfer of assets to the beneficiary the IRS considers the act of funding the trust to be a taxable gift. They also apply anticipated interest to the taxable value of the initial contribution into the trust.
When you are creating the terms you arrange for the annuity payments to equal the entirety of this taxable value over the term of the trust, "zeroing it out" as it were.
The key is to fund the trust with assets that you expect to appreciate considerably over the term of the trust. If this appreciation exceeds the original IRS estimate, a remainder will exist upon the expiration of the trust term. Your beneficiary will assume ownership of this free of taxation.
If you are interested in finding out more about this and other estate planning strategies, don't hesitate to pick up the phone to arrange for a consultation with a good Redlands CA estate planning lawyer.