GRAT Basics

Many of our advisors have expressed great interest in our previous posts detailing how wealthy clients can pass multitudes of property onto their children both, estate and gift tax free. Although, in the following example it’s not entirely gift tax free. The grantor does have a taxable gift totaling a whopping $8.63 in order to pass $5,366,368 onto their children. These absurd results are largely due to a huge loophole in the tax code called a Walton GRAT, named for the country’s wealthiest family–the owners of Wal-Mart.

With returns like this why does anyone pay estate tax? Over this very question the IRS tried to fight against this loophole but lost overwhelmingly in Tax Court. Apparently, this is considered settled law, except the Obama Administration has suggested it needs reform. Do you think this loophole is big enough to drive a fleet of Wal-Mart trucks through? Well you are correct! Take a few minutes to review the calculations and read the details. You may have a wealthy client who would like to use this tool. There is a small risk though: all of the money comes back into the estate if the client dies during the GRAT period. Sounds like a great need for life insurance, doesn’t it?


About Stephanie

Stephanie is the 3rd generation of Shaws to work for Shaw American. After graduating from Indiana University in 2011, Stephanie quickly found that life insurance was her true calling.