Tennessee Grantor Retained Income Trust with Division into Trusts for Issue after Term of Years
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FAQ
When a trustee becomes incapable of fulfilling their duties, it's important to have a plan in place. An alternative trustee can take over if outlined in the trust agreement, ensuring the smooth management of the trust. This is especially vital for a Tennessee Grantor Retained Income Trust with Division into Trusts for Issue after Term of Years, as continuity in management directly affects the trust's objectives.
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.
Pros. There are a number of benefits to setting up a GRAT. For one, the annuities can provide a steady stream of income for those who may need it in retirement. However, the main benefit of establishing a GRAT is the potential to transfer large amounts of money to a beneficiary while paying little-to-no gift tax.
GRATs are irrevocable trusts that last for a specific period of time of at least two years. The term you choose depends on your goals and expectations for asset growth potential, but we typically recommend a term between two and five years.
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).
Tax Implications of the GRAT During the term of the GRAT, the Donor will be taxed on all of the income and capital gains earned by the trust, without regard to the amount of the annuity paid to the Donor.
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.
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.
Grantor retained annuity trusts (GRAT) are estate planning instruments in which a grantor locks assets in a trust from which they earn annual income. Upon expiry, the beneficiary receives the assets with minimal or no gift tax liability. GRATS are used by wealthy individuals to minimize tax liabilities.
Prior to this year, all Tennessee trusts were required to file annual Tennessee income tax returns. This includes garden variety revocable trusts as well as irrevocable grantor trusts that use the grantor's social security number as their EIN.