Mark Zuckerberg and Dustin Moskovitz are two young males who remain in ownership of some amazing wealth. The Facebook founders are in a position where they need to look for methods to protect significant monetary resources beyond their own lives. There can be substantial tax consequences that go along with gift giving and property transfers after death, so careful planning is crucial.
Forbes has actually run a story recently explaining how these two people took actions back in 2008 to move resources in a tax efficient manner. They apparently utilized the zeroed out GRAT strategy.
A GRAT is a grantor kept annuity trust. As the name recommends, the grantor retains interest in the trust by receiving annuity payments throughout the trust term, however he or she also names a beneficiary. This beneficiary would presume any remainder that is left in the trust after its term expires.
Funding the trust is thought about to be an act of taxable present offering, and the Internal Revenue Service represent expected interest incomes using 120% of the federal midterm rate. The primary worth plus this approximated interest equates to the taxable worth of the trust.
“Zeroing it out” relates to the grantor taking the entirety of this taxable value throughout the term by means of the annuity payments. Since he or she keeps all of the interest, no gift tax applies.
But if you fund the trust with considerable securities (like Facebook shares prior to a preliminary public offering) that exceed the applied interest price quote, there will be assets staying in the trust after its term ends. These resources will become the property of the beneficiary without any tax being levied on the transfer.
Even if you are not in the enviable position of the Facebook founders, you may be able to gain from the development of a grantor maintained annuity trust. To check out the possibilities, make an appointment to take a seat and discuss your unique circumstance with a certified and experienced San Jose estate planning lawyer.