In this edition of M&B Monthly…

Letter From The President: Introduction To A Grantor Retained Annuity Trust (GRAT)
Grantor Retained Annuity Trusts Explained – John Boylston
Estate Planning Seminars: Share With A Friend
A Little About Us… Highlighting our Customer Service Coordinator, Anna Gernega & Her Family Borscht Recipe


Letter from the President, Justin Martin

Grantor Retained Annuity Trust

In prior newsletters we discussed the power of gifting assets to reduce your taxable estate when you pass away. But strait forward gifts are not always an option. Sometimes clients appreciate the value of gifting, but are not yet ready to give up the income from an asset or they want to give away more but have already used their lifetime exemption. This is where a Grantor Retained Annuity Trust (GRAT) becomes a useful tool in your estate tax planning. In this months article, John Boylston, Attorney and Vice President at Myatt & Bell, P.C., gives some guidance on how a GRAT works.


There is no better way to understand how a Grantor Retained Annuity Trust (GRAT) works, then by sharing a scenario in which a client may choose to go this route in their gift and estate tax planning. As Justin mentioned above, two scenarios in which a GRAT may be of good use is (A) you want to give while keeping an income stream; or (B) you want to give without using your lifetime exemption. Below I outline how you can resolve these two objectives by giving you a sample scenario.

(A) Giving while keeping an income stream

Steve and Grace (our example couple) own a $1,000,000 commercial property. This property creates $100,000 of income for them each year. While Steve and Grace want to eliminate estate taxes when they die, they also need the income from the commercial property for another 10 years in order to feel secure in their financial plan. To solve this problem, Steve and Grace might consider a Grantor Retained Annuity Trust (GRAT). A GRAT is an irrevocable trust that permits Steve and Grace to start the gifting process now while still receiving the income from the asset for some period of time.

Here is how Steve and Grace would structure their GRAT:

  1. Create the GRAT and gift their $1,000,000 commercial property to the trust.
  2. Receive annual payments from the GRAT of $100,000 for 10 years.
  3. After 10 years, the GRAT will distribute the commercial property to Steve and Grace’s children (or into trusts for them).

So long as Steve and Grace outlive the length of the GRAT (in this case 10 years), then the commercial property is not included in their taxable estate.

(B) Giving without using your lifetime exemption

The IRS calculates gifts based on the value of what you give away minus the value of what you get back. In the example above, Steve and Grace gave away a $1,000,000 piece of commercial real estate and received back 10 payments of $100,000. Therefore, they gave up $1,000,000 and received $1,000,000 back. The IRS calculates this gift as being worth $0. This is called a “zeroed-out” GRAT. Therefore, using a GRAT, Steve and Grace can effectively pass a $1,000,000 asset to their children, but they do not have to pay any gift taxes on the transfer or use any of their lifetime gift allowance. GRATs are a great tool to pass along income producing assets like real estate and businesses.

If you think that a GRAT might be a good tool for your family, please let us know. We would be happy to talk about how a GRAT might work within your estate plan.
-John Boylston


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From Our Clients…

“Very professional, attention to detail with great finished product” – Lorrie

“We are more than happy to have referred our friends to Myatt & Bell. John and others have done a wonderful job for us over the years and I trust him implicitly.” – Kathleen


A Little About Us…

____________

Anna Gernega – Customer Service Coordinator


What do you love about Myatt & Bell, PC?:
 Everyone is so easy to work with and genuinely make you feel like you’re part of a family.

What is your favorite book to read: The Bible is always number 1.  Also non-fiction war books, I love to read how even in the worst times imaginable people can still come together and have compassion for others despite the consequences.

Most memorable place you visited: Israel by far.  It just feels like your stepping into a different world.


Anna’s Family Borscht Recipe

Ingredients:
3 normal size potatoes
1 carrot
1 pepper
1 red beet
2 full tbsp of Sour Kraut
1/2 of medium sized cabbage
1/2 of an onion
3 cloves of garlic
1 tbsp tomato paste
Salt/Pepper by your taste
Parsley
(Key: cut up all ingredients first before starting directions, it goes more smoothly)

Directions:
Fill 12 cups of water into a pot, boil
In a sauce pan with oil mix carrots, pepper, onion (not fully cooked just till coloring changes and soft)
Add the 1 tbsp of tomato paste (mix the spoonful with 1/2 cup boiling water in a cup first until its dissolved) then add to sauce pan with veggies
Have it simmer for about 5 min on medium heat with a cover (mix every once and awhile)
In a separate sauce pan with oil put the cut up beets in & cook until soft (add 1tsp of sugar so it doesn’t loose the color in the borscht)
Throw potatoes and sour kraut into boiling water and add salt to taste
When potatoes are soft, throw in cabbage
Let it all cook for a bit then put it in sauce pans with veggies (start w carrot/pepper one; mix then throw in beets one)
Let it all boil until combined and soft
Add in 3 cloves of garlic (pressed) and pepper to taste and cut up parsley as a garnish on top


Families choose Myatt & Bell to design their estate plans with honest optimism and meticulous attention to detail.

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Contact Us

Call (503) 641-6262 or contact us online for your complimentary estate planning consultation.

10300 SW Greenburg Rd #500
Portland, OR 97223
Phone: (503) 641-6262
Fax: (503) 546-9724

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