A New Mexico Granter Retained Income Trust with Division into Trusts for Issue after Term of Years, also known as a GREAT with Division, is an estate planning tool used in New Mexico that allows individuals to transfer assets while also retaining an income stream. This type of trust is useful for individuals who want to minimize estate taxes and transfer wealth to their beneficiaries. In a GREAT with Division, the Granter (the person creating the trust) transfers assets into the trust and retains the right to receive income from those assets for a specified period of time, usually a term of years. At the end of the term, the assets in the trust are divided into separate trusts for the benefit of the beneficiaries. One of the key benefits of a New Mexico GREAT with Division is that, if structured properly, the value of the assets transferred to the beneficiaries can be significantly reduced for estate tax purposes. This is because the value of the retained income interest is subtracted from the value of the assets in the trust when determining the taxable estate. There are two main types of New Mexico Grants with Division: 1. Standard GREAT with Division: In this type of GREAT, the Granter retains an income interest for a specified term of years and at the end of the term, the remaining assets in the trust are divided into separate trusts for the beneficiaries. The income interest retained by the Granter is typically paid out as an annuity or a fixed percentage of the initial fair market value of the assets. 2. Flip GREAT with Division: This type of GREAT with Division allows the Granter to "flip" the trust from a Granter Retained Annuity Trust (GREAT) to a Dynasty Trust or a Generation-Skipping Trust (GST) at a predetermined triggering event, such as a significant increase in the value of the assets. This can be advantageous for individuals who anticipate a substantial appreciation in the value of their assets. Overall, a New Mexico Granter Retained Income Trust with Division into Trusts for Issue after Term of Years is a sophisticated estate planning tool that can provide significant tax and asset transfer benefits. It is important to work with an experienced estate planning attorney to ensure that the trust is properly structured and customized to suit individual needs and goals.
New Mexico Grantor Retained Income Trust with Division into Trusts for Issue after Term of Years
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Key Takeaways. A 5 by 5 Power in Trust is a clause that lets the beneficiary make withdrawals from the trust on a yearly basis. The beneficiary can cash out $5,000 or 5% of the trust's fair market value each year, whichever is a higher amount.
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.
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).
The annuity amount is paid to the grantor during the term of the GRAT, and any property remaining in the trust at the end of the GRAT term passes to the beneficiaries with no further gift tax consequences.
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).
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.
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).
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.
Year Trust, also known as a Legacy Trust or Medicaid Asset Protection Trust, can be established to protect assets from being spent down on long term care in a nursing home. The assets you place in the Legacy Trust will become exempt from the Medicaid spend down requirements after a 5 year look back period.