The Massachusetts Granter Retained Income Trust with Division into Trusts for Issue after Term of Years, often abbreviated as GRIT with Division into T for Issue after T, is a type of irrevocable trust specifically designed for estate planning purposes. It allows the granter to retain the income generated by the trust assets for a certain period of time, after which the trust assets are distributed to the designated beneficiaries, known as "issue." This type of trust is commonly used in Massachusetts due to its unique provisions and the potential tax benefits it offers. It allows the granter to reduce the value of their estate for estate tax purposes while still retaining an income stream from the trust assets during the term of years specified. The GRIT with Division into T for Issue after T is divided into two main types: 1. GRIT with Division into Simple Trust for Issue after Term of Years: Under this variation, the trust income is distributed to the granter after the initial term of years. The trust assets are then divided into equal shares for each issue, meaning the designated beneficiaries will receive their respective shares upon the termination of the trust. 2. GRIT with Division into Income and Principal Trust for Issue after Term of Years: In this type, the trust income is divided into two portions — income and principal. The grantor will receive the income portion during the specified term of years, while the principal portion remains invested. At the end of the term, the principal is then divided into shares for each issue. Both variations of this trust have specific rules and regulations governing their creation and management. It is important to consult with a qualified attorney or financial advisor specialized in estate planning to ensure that the trust is properly established and aligned with your specific goals and objectives. Overall, the Massachusetts Granter Retained Income Trust with Division into Trusts for Issue after Term of Years is a powerful tool for individuals considering efficient estate planning in the state. By utilizing this trust, a granter can transfer assets to their designated beneficiaries while enjoying income benefits during the specified term, ultimately reducing potential estate tax burdens.
Massachusetts Grantor Retained Income Trust with Division into Trusts for Issue after Term of Years
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The 65-day rule relates to distributions from complex trusts to beneficiaries made after the end of a calendar year. For the first 65 days of the following year, a distribution is considered to have been made in the previous year.
Since a GRAT represents an incomplete gift, it is not a suitable vehicle to use in a generation-skipping transfer (GST), as the value of the skipped gift is not determined until the end of the trust term.
Some of the grantor trust rules outlined by the IRS are as follows: The power to add or change the beneficiary of a trust. The power to borrow from the trust without adequate security. The power to use the income from the trust to pay life insurance premiums.
The creator of the trust (the Grantor) transfers assets to the GRAT while retaining the right to receive fixed annuity payments, payable at least annually, for a specified term of years. After the expiration of the term, the Grantor will no longer receive any further benefits from the GRAT.
Under current law assets in a grantor trust do not receive a step up in basis upon the grantor's death and are not included in the taxable estate of the grantor.
At the end of the initial term retained by the Grantor, if the Grantor is still living, the remainder beneficiaries (or a trust to be administered for the benefit of the remainder beneficiaries) receive $100,0000 plus all capital growth (which is the amount over and above the net income that was paid to the Grantor).
To implement this strategy, you zero out the grantor retained annuity trust by accepting combined payments that are equal to the entire value of the trust, including the anticipated appreciation. In theory, there would be nothing left for the beneficiary if the trust is really zeroed out.
Too bad, says the IRS, unless you are an estate or trust. Under Section 663(b) of the Internal Revenue Code, any distribution by an estate or trust within the first 65 days of the tax year can be treated as having been made on the last day of the preceding tax year.
Grantor Retained Income Trust, Definition A grantor retained income trust allows the person who creates the trust to transfer assets to it while still being able to receive net income from trust assets. The grantor maintains this right for a fixed number of years.
Commonly referred to as the 21 year rule, the rule deems certain types of trusts to dispose of their capital property and recognize the accrued gains every 21 years. Without this rule, trusts could be used to defer the realization of a capital gain for more than 21 years (80 years in BC).