Estate Planning & GRATs, with Darra Rayndon of Clark Hill PLC

Estate taxes are an important item to consider for people with sizable estates. There are several tools available to minimize the estate tax burden. In this report, Darra Rayndon, a member of Clark Hill PLC, Scottsdale, Arizona, explains how GRATs can help reduce estate tax liability.

Darra Rayndon

Darra Rayndon

Rayndon explains that a GRAT is a tool used for estates that have rapidly appreciating assets. A GRAT is a grantor retained annuity trust. This is a trust to which the grantor contributes assets that will be appreciating rapidly in the future. The trust is set up to pay an annuity to the beneficiary for a term of years, perhaps five years, perhaps more. The gift tax liability of the transfer is measured by the term of the trust and the value of what the beneficiary would receive measured at today’s values. In other words, there is a discount for the contribution, and that is its appeal in estate planning.

In addition, the grantor will receive a stream of income from the GRAT. However, all income earned by the trust property and all appreciation of the assets will be outside the estate of the grantor.

The beneficiary of GRAT may be any of several possibilities. It can be one or more family members. Other individuals may be beneficiaries, and other trusts may also be named as beneficiaries. A limited liability company can even be a beneficiary.

Rayndon points out that the gift tax and generation-skipping transfer tax exemptions don’t apply to GRATs. However, the grantor can take advantage of the gift tax exemption, which is currently $5,450,000 per person, assuming that there is a taxable gift involved.

Rayndon also notes that a GRAT is an irrevocable trust. This means that it should be done carefully when it is done so that everything goes as anticipated and that the assets pass to the named beneficiaries at the end of the trust term. Another advantage is that creditors cannot get at the assets in the GRAT.

The people who will be interested in GRATs are those with taxable estates. The current amounts are $5,450.000 for an individual or 10,900,000 for a married couple. Using current figures, property that will appreciate more than 1.4% would be good property to put into a GRAT.

Darra L. Rayndon, a Member in Clark Hill’s Estate Planning & Probate Practice Group, has over thirty years of practice experience and is certified as a tax specialist by the Arizona Bar. Darra’s work includes tax planning, business entity formation and representation including corporations, partnerships, limited liability companies, and other businesses, estate and wealth succession planning, asset protection, exempt private offerings, and real estate matters. She is also a Certified Fiduciary through the Arizona Supreme Court, and as such, serves as trustee and in other fiduciary capacities when called upon. The Legal Broadcast Network is a featured network of Sequence Media Group.

Hillary Clinton Ahead Of Donald Trump In Latest Polls

Now that both conventions have wrapped up lets see what the latest polls are saying about the 2016 presidential candidates.

The Economist’s latest general election poll has Hillary Clinton leading 46 percent to Donald Trump’s 43 percent. When third party candidates are included, the Economist found Clinton with 41 percent, Trump with 36 percent, followed by Gary Johnson’s 8 percent and Jill Stein with 4 percent.

NBC News found in their latest poll Hillary Clinton ahead 8 points, 50 percent to 42 percent for Donald Trump. Including third party candidates, Clinton still leads with 42 percent, followed by Trump at 38 percent, Johnson with 9 percent, and Jill Stein’s 4 percent.

CBS News polled earlier this week and found Hillary Clinton on top with 47 percent to Donald Trump’s 41 percent. While CNN found Clinton with 52 percent to Trump’s 43 percent, the widest margin in recent polling.

Clinton looks to have benefitted from the Democratic Convention while it appears Trump’s convention bounce is over. While both candidates have their own scandals to deal with, the polling seems to show Clinton with the current upper hand, with Trump only besting her in polls from Georgia and Oklahoma, according to Real Clear Politics.

US Launches Airstrikes On ISIS In Libya

In response to requests to help push ISIS militants from their stronghold in Sirte, Libya, the US have started a bombing campaign in the country this week. Since the Islamic State seized the city last year it has been one of the more prominent bases for the terror group outside of Syria and Iraq. The Pentagon reports that Monday’s strike targeted a tank location and two ISIS vehicles that posed a threat to Libya’s GNA forces. Reuters reports that the GNA or Government of National Accord, is a UN-mediated deal from last year which was met to end the conflict between two rival governments in the country.

Western powers have offered support to the GNA as it fights the Islamic State and to revive Libya’s oil production. Forces in Libya have been able to recapture territory around Sirte but even Libyan fighter jets lack the weapons and technology for precise strikes.

The last acknowledged airstrikes by the US in Libya were in February, according to Reuters.

U.S. GDP Grows 1.2% During The Second Quarter

The Wall Street Journal is reporting that the US gross domestic product grew at an annual rate of 1.2 percent in the second quarter, below the 2.6 percent forecast by economists. This is the worst first half performance since 2011. The current annual growth rate during this business cycle is 2.1 percent, the weakest of any expansion since 1949, according to the Journal.

Although unemployment has fallen below 5 percent this year and employers are adding jobs, the pace of monthly payroll growth was down, leading Federal Reserve officials to rethink their support of an interest rate increase this year if the economy is not on as solid footing as forecasted.

The second quarter did have some positives: consumer spending rose, personal consumption expand at a 4.2 percent rate, spending on services was up 3 percent, and international trade added .23 percent to overall growth. 

Nonresidential fixed investments however declined at a 2.2 percent pace, meaning companies spent less on buildings and equipment. Residential fixed investments regarding home building and improvements also fell at a 6.1 percent pace.

These 2nd quarter numbers have not yet felt the effect of the UK’s brexit decision which will add more uncertainty.