Happy Holidays

It is December 1, 2008. This is generally the most hectic month of the year for estate tax professionals as we attempt to help clients complete their gifting by December 31.'

Most large gifting by NC residents however is being postponed to January, when the repeal of the NC Gift tax goes into effect.

I fully expect January to be full of Grantor Retained Annuity Trust (GRAT) formations and larger installment note sales to Intentionally Defective Trusts (IDIT).

A GRAT is a type of Gift Trust. The Grantor gives property to the trust and reserves the right to an annuity from the property over a specified term. At the end of the term (if the Grantor is still living), the GRAT beneficiaries receive whatever is left. If designed properly, the GRAT can be a means to gift more to your family than you otherwise could with annual exclusion gifting alone.

An installment note sale to an Intentionally Defective Trust is an estate freeze technique in which the Grantor essentially exchanges an asset with growth potential for an asset without growth potential. An installment note only grows by the interest on the note.

Neither of these techniques work well if the assets do not appreciate. The two transactions are essentially competing techniques to accomplish the same thing: move all future growth to your family without gift and estate taxes.

If you want to know more about how these techniques may fit in your planning, please let me know.