Virginia Tax Review
On November 5, 1990, legislation of vital importance to the estate-planning community was enacted. Adding chapter 14 to the Internal Revenue Code ("Code"),the legislation adopted a comprehensive framework for dealing with various estate-freeze techniques, which taxpayers had been utilizing for the purpose of minimizing -- and, in some cases, avoiding -- transfer-tax liability.One technique explicitly targeted in the new legislation is the grantor retained income trust (the "GRIT").
The GRIT is a variation on the inter vivos gift, which has long been used by taxpayers as an estate-planning strategy designed to reduce transfer-tax liability.While Congress has sought to eliminate the transfer-tax advantages inherent in the making of inter vivos gifts, it has not been entirely successful.However inappropriate as a matter of policy, the inter vivos gift remains a viable and important technique for achieving transfer-tax savings. In the 1980's, tax planners began to realize that the GRIT was a particularly attractive method by which to effect an inter vivos gift, making the GRIT one of the most popular estate-planning strategies.
In appropriate circumstances, the GRIT could produce more wealth for its remainderman than a comparable outright gift might produce for a donee.In essence, the GRIT would be structured to require that trust income be paid to the grantor for a period of years designated in the trust instrument. Upon the expiration of this period of years, the trust would terminate, and the corpus would pass to the remainderman.
Mitchell M. Gans,
GRIT's, GRAT's and GRUT's: Planning and Policy, 11 Va. Tax Rev. 761
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