Mark Zuckerberg and Dustin Moskovitz are two young guys who are in possession of some amazing wealth. The Facebook creators are in a position where they have to try to find ways to preserve significant financial resources beyond their own lives. There can be considerable tax repercussions that go along with present giving and possession transfers after death, so careful planning is essential.
Forbes has run a story recently explaining how these two individuals took steps back in 2008 to transfer resources in a tax efficient manner. They supposedly utilized the zeroed out GRAT strategy.
A GRAT is a grantor retained annuity trust. As the name suggests, the grantor keeps interest in the trust by receiving annuity payments throughout the trust term, however he or she also names a beneficiary. This beneficiary would assume any rest that is left in the trust after its term expires.
Funding the trust is thought about to be an act of taxable gift giving, and the IRS represent expected interest profits utilizing 120% of the federal midterm rate. The primary value plus this approximated interest equates to the taxable worth of the trust.
“Zeroing it out” equates to the grantor taking the totality of this taxable worth throughout the term by means of the annuity payments. Due to the fact that she or he maintains all of the interest, no gift tax applies.
But if you money the trust with considerable securities (like Facebook shares prior to a going public) that surpass the applied interest price quote, there will be possessions remaining in the trust after its term expires. These resources will end up being the property of the recipient without any tax being levied on the transfer.
Even if you are not in the excellent position of the Facebook creators, you may have the ability to gain from the creation of a grantor kept annuity trust. To explore the possibilities, make a consultation to take a seat and discuss your distinct circumstance with a licensed and knowledgeable San Jose estate planning attorney.