Trusts for Grantor-Retained Income

Jul 17, 2023

It is common for people to seek wealth transfer and estate planning strategies that not only preserve their assets but also benefit them financially during their lifetimes. One such strategy is the grantor-retained income trust (GRIT).

GRITs offer a unique opportunity for individuals to retain an income stream from tax-advantaged assets before passing the assets on to beneficiaries. In this article, we will look at grantor-retained income trusts and their benefits and potential drawbacks.

What is a GRIT?

A grantor-retained income trust is an estate planning tool that allows an individual, or grantor, to transfer assets to a trust while retaining an income interest for a specified period. During this timeframe, the grantor continues to receive income from the assets held in the trust. At the end of the trust term, the remaining assets pass to the designated beneficiaries.

Benefits of GRITs

One of the primary benefits of a GRIT is its ability to minimize estate taxes. By transferring assets to the trust, the grantor effectively removes the assets from their estate for tax purposes. This can lead to significant tax savings by reducing the estate's taxable value. Additionally, the appreciation of the assets in the trust during the trust term is also removed from the grantor's estate, further reducing potential estate tax liabilities.

Another advantage of a GRIT is the ability to transfer wealth to beneficiaries at a potentially lower gift tax cost. The value of the gift is determined using actuarial calculations that consider the term of the trust, the income stream retained by the grantor, and the applicable interest rates. If the value of the income interest is high relative to the total value of the assets transferred, the taxable gift may be reduced.

GRITs also offer flexibility in terms of income distribution. The grantor can structure the trust to provide a fixed income stream or a percentage of the trust assets. This allows the grantor to tailor the income payments to their specific needs and financial goals. For individuals who rely on income from their assets, a GRIT can be a valuable tool to ensure a steady income stream while still achieving wealth transfer objectives.

Potential Drawbacks of GRITs

Though GRITs have some enticing benefits, there are potential drawbacks to keep in mind. First, the grantor relinquishes ownership and control of the assets transferred to the trust. Though the grantor retains an income interest, the assets are no longer under their direct control. Therefore, it's crucial to carefully consider the trust terms and their effect on the grantor's financial security and lifestyle.

Additionally, if the grantor passes away before the trust term expires, the assets held in the GRIT will be included in their estate for estate tax purposes. This means that the anticipated tax benefits of the GRIT may be diminished if the grantor doesn't survive the trust term. Proper estate planning and consideration of the grantor's health and life expectancy are vital when establishing a GRIT.

Another important consideration is that a GRIT's beneficiaries can't be the grantor's close relatives. This includes the grantor's spouse and children. This feature of GRITs works well for someone who wants the trust's assets to go to nonrelatives or charities.

Consult a Professional

A GRIT can offer you a way to have an income stream from assets placed in the trust while saving money in taxes and passing the assets on to designated beneficiaries. However, there are some limitations. Consult an experienced estate planning attorney and your financial advisor to find out if a GRIT will help you achieve your estate planning goals.

This article offers a summary of aspects of estate planning. It is not legal advice. It does not create an attorney-client relationship. For legal advice, you should contact an attorney.

We hope you found this article helpful. If you have questions or would like to discuss your personal situation, please do not hesitate to contact our Woodland Hills office at (818) 292-8160 or our Beverly Hills office at (310) 230-5686 to schedule a consultation. We look forward to the opportunity to work with you.

Everything You Need to Know About Hiring a Probate Attorney

08 May, 2024
The process of navigating probate court can be overwhelming and complex, especially during a time of grief. Hiring a probate attorney in California can make the process much easier and ensure that everything is handled correctly. In this blog post, we will discuss the importance of hiring a probate attorney, what to look for when choosing one, and how they can help you through the probate process.  Understanding Probate: Probate is the legal process through which a deceased person's assets are distributed to their heirs and beneficiaries. It involves validating the will, paying debts and taxes, and distributing assets according to the deceased person's wishes. The probate process can be lengthy and complicated, especially if there are disputes among family members or creditors. Why Hire a Probate Attorney: Hiring a probate attorney in California is crucial for ensuring that everything is done correctly and efficiently. They have the knowledge and experience to navigate the complexities of probate court, handle any disputes that may arise, and ensure that assets are distributed according to the deceased person's wishes. Without a probate attorney, you may risk making costly mistakes or delays in the distribution of assets. How a Probate Attorney Can Help: A probate attorney can handle all aspects of the probate process on your behalf, including filing necessary paperwork with the court, communicating with creditors and beneficiaries, valuing assets, preparing tax returns, and representing you in court if necessary. They can also provide guidance on estate planning strategies to minimize taxes and avoid future disputes among family members. The Benefits of Hiring a Probate Attorney: By hiring a probate attorney in California, you can have peace of mind knowing that everything will be handled correctly and efficiently during this difficult time. They can help you avoid costly mistakes or delays in the distribution of assets while ensuring that your loved one's final wishes are carried out. Navigating the probate process can be challenging without proper legal guidance. By hiring The Estate Planning & Elder Law Firm, you can ensure that everything is handled correctly while minimizing stress during an already difficult time. We can provide invaluable support throughout the entire process. Don't hesitate to reach out to us when dealing with matters as important as distributing your loved one's assets – it will save you time, money, and unnecessary headaches down the road.

The Importance of Hiring a Power of Attorney

08 May, 2024
As Californians, we often find ourselves navigating complex legal waters, whether it's dealing with estate planning, healthcare decisions, or financial matters. In these situations, having a power of attorney can be an invaluable asset. A power of attorney is a legal document that allows someone to make decisions on your behalf when you are unable to do so yourself. In this blog post, we will discuss the importance of hiring a power of attorney in California and how they can help protect your interests and ensure your wishes are carried out. One of the main reasons why you need to hire a power of attorney in California is for peace of mind. Life is unpredictable, and unexpected circumstances can arise where you may become incapacitated or unable to make decisions for yourself. By appointing a trusted individual as your power of attorney, you can rest assured knowing that there is someone who can step in and make important decisions on your behalf. This can include managing your finances, handling medical issues, or even making legal decisions if necessary. Another important reason to hire a power of attorney in California is for estate planning purposes. A power of attorney can help ensure that your assets are managed according to your wishes in the event that you become incapacitated or pass away. They can work closely with your estate planning attorney to ensure that your assets are distributed as you intended and that any outstanding debts or taxes are taken care of. Without a power of attorney in place, the court may have to appoint someone to handle these matters, which can lead to delays and additional costs. In addition to managing financial and legal matters, a power of attorney can also assist with healthcare decisions. If you were unable to communicate your wishes due to illness or injury, having a power of attorney for healthcare allows someone else to make medical decisions on your behalf. This includes deciding on treatment options, choosing healthcare providers, and even making end-of-life decisions if necessary. By appointing a power of attorney for healthcare, you can ensure that your wishes are respected and followed even when you cannot speak for yourself. Furthermore, hiring a power of attorney in California can help protect against potential abuse or exploitation. Unfortunately, vulnerable individuals such as the elderly or disabled may be targeted by unscrupulous individuals looking to take advantage of their situation for personal gain. By appointing a trustworthy individual as your power of attorney, you have an added layer of protection against financial exploitation or abuse. Your power of attorney has a legal duty to act in your best interests and must follow strict guidelines set forth by California law. Hiring a power of attorney in California is crucial for protecting yourself and ensuring that your wishes are carried out when you are unable to do so yourself. Whether it's managing finances, making healthcare decisions, or handling legal matters, having someone you trust appointed as your power of attorney provides peace of mind and security during uncertain times. Contact The Estate Planning & Elder Law Firm to speak about creating powers of attorney documents tailored to meet your specific needs and circumstances.

Hiring an Elder Law Attorney in California

08 May, 2024
As we age, it's essential to plan for the future and ensure that our legal affairs are in order. From creating a will to navigating long-term care options, an elder law attorney can provide invaluable guidance and support. If you're a California resident looking to hire an elder law attorney, this guide is for you. In this blog post, we'll explore the importance of hiring an elder law attorney, what services they offer, how to find the right attorney for your needs, and what questions to ask during the consultation process. Understanding the Role of an Elder Law Attorney: Elder law attorneys specialize in legal issues that affect older adults and their families. They can help with a wide range of matters, including estate planning, Medicare and Medicaid planning, guardianship and conservatorship, long-term care planning, and more. By working with an elder law attorney, you can ensure that your wishes are carried out effectively and protect your assets for future generations. Services Offered by Elder Law Attorneys: One of the key services offered by elder law attorneys is estate planning. This includes drafting wills, establishing trusts, and creating powers of attorney to appoint someone to make decisions on your behalf if you become incapacitated. They can also assist with long-term care planning, helping you navigate the complex world of Medicare and Medicaid eligibility requirements.  Questions to Ask During Consultations: During consultations with potential elder law attorneys, be sure to ask about their experience handling cases similar to yours, their fee structure, and how they communicate with clients. It's also important to inquire about their approach to problem-solving and how they plan to work with you to achieve your goals. Hiring The Estate Planning & Elder Law Firm is a crucial step in planning for your future and protecting your assets as you age. By understanding the role of an elder law attorney, the services we offer, and what questions to ask during consultations; you can make informed decisions about who will represent you in legal matters related to aging. Remember that finding the right attorney is essential for peace of mind knowing that your wishes will be respected and your assets protected. Contact us today for more information on our services.

14 Essential Questions to Ask Aging Parents This Holiday

05 Dec, 2023
About 45 percent of adults say they plan to travel for the holidays, per The Vacationer .

Estate Planning for Surviving Spouses

12 Sep, 2023
After losing a spouse or longtime partner, it’s difficult to look past your grief. However, it’s crucial to understand the important and timely decisions you must make regarding your finances and personal estate plan.

What Is a Gun Trust?

08 Aug, 2023
If you own a firearm of monetary or sentimental value, you may wonder how to transfer ownership to your loved ones after you die. In addition to creating a will, you may want to make special arrangements for your weapon.

Inherited Retirement Accounts: Minimizing Tax Consequences

01 Aug, 2023
Generally speaking, beneficiaries of retirement plan accounts and Individual Retirement Accounts are subject to required minimum distribution ( RMD ) rules. Most people who inherit this type of retirement account now must withdraw all the funds from that account within 10 years. Exceptions to this include the following:

A Look at Legal Trends in Estate Planning

31 Jul, 2023
In response to upcoming federal and state law changes, estate planning is becoming more dynamic than ever. These laws affect estate planning tax, trust, and charitable strategies, and the higher your net worth, the more critical it is to re-evaluate your plan.

Independent Living with Home Sharing is Preferable for Baby Boomers

24 Jul, 2023
As the baby boomer generation ages alone, fewer and fewer family caregivers are available to assist them. The ratio of caregivers to care recipients has fallen and is projected to continue for the next forty years. According to the Pew Research Center, 20 percent of baby boomers are childless. That number is double the previous generation. Additionally, over 40 percent of boomers don't have a spouse or partner and have children living more than 500 miles away .

It Is Important to Take Care of Caregivers as Well

10 Jul, 2023
During Jeanette's mother's hospitalization, Jeanette's father begged her to take care of her mother if he ever became unable. Of course, Jeanette said, "Yes." Years later, Jeanette's father passed. Her mother's hearing and eyesight failed, she could no longer drive, and she had fallen several times. Jeanette remembered the promise to her father.
More Posts
Share by: