{"id":15333,"date":"2017-11-10T01:05:19","date_gmt":"2017-11-10T06:05:19","guid":{"rendered":"http:\/\/www.escapeartist.com\/?p=15333"},"modified":"2020-01-22T07:34:37","modified_gmt":"2020-01-22T12:34:37","slug":"transfer-assets-heirs-avoid-estate-gift-taxes","status":"publish","type":"post","link":"https:\/\/www.escapeartist.com\/blog\/transfer-assets-heirs-avoid-estate-gift-taxes\/","title":{"rendered":"How to Transfer Assets to Your Heirs and Avoid Estate and Gift Taxes"},"content":{"rendered":"
Chris from San Diego asks: “I am holding assets that I expect to appreciate significantly in the coming years. How can I transfer them to my heirs without estate and gift taxes?”<\/em><\/p>\n Ambassador Nagel:<\/p>\n Chris, thank you for the question and reaching out. This is one of the most common questions I have recieved over my decades of practicing international tax law.<\/p>\n If you\u2019re investing in assets that you expect to increase in value, and you plan to hold those assets for a number of years – not buy and sell, but hold – you might consider setting up a Grantor Retained Annuity Trust, or GRAT.<\/p>\n A Grantor Retained Annuity Trust is used by long-term investors to protect appreciating property and family businesses from gift and estate taxes. Here\u2019s how a GRAT works and how to use it to eliminate gift and estate taxes…<\/p>\n When you transfer assets to a revocable trust, you will typically pay gift tax on the transfer. If you hold those assets in your estate (no trust) and transfer them upon your death, you\u2019ll pay estate tax on the transfer. Either way, Uncle Sam wants his cut of your wealth\u2026 at least if you\u2019re in the top 5% with an estate worth $5.49 million or more in 2017.<\/p>\n The Grantor Retained Annuity Trust allows you to gamble that your assets will appreciate at a rate faster than the IRS\u2019s published rate. If you\u2019re buying cryptocurrency, pre-IPO stocks, foreign real estate, Initial Coin Offerings, or anything else that you expect to appreciate quickly and consistently, consider forming a GRAT.<\/p>\n More specifically, a GRAT is a bet that your assets will appreciate at a rate higher than 120% of the Applicable Federal Midterm Rate. The Midterm rate is a rate of interest published each month on the IRS website<\/a>.<\/p>\n The Midterm rate has been at 2.4% and 2.6% during 2017. So, if you expect your assets to appreciate more than 2.6% over the next several years, and you wish to leave those assets to your heirs, you will benefit from a GRAT.<\/p>\n Here\u2019s how a Grantor Retained Annuity Trust works:<\/p>\n When you transfer assets into a GRAT, you (the settlor) receive a guaranteed annuity over a certain number of years. That annuity is meant to return to you 100% of the assets contributed to the trust, plus a profit (the interest rate) over the life of the trust.<\/p>\n Because the assets and the profits are being returned to you, no gift tax is payable when you fund the trust.<\/p>\n If your assets appreciate at a rate lower than or equal to 120% of the Midterm rate, all of the assets of the trust will have been distributed to you with nothing left for your heirs.<\/p>\n If your assets appreciate at a rate higher than 120% of the Midterm rate, that difference will pass to your heirs with zero gift or estate tax payable.<\/p>\n