Improving Tax Management of
Grantor-Retained Annuity Trusts
In a May 2020 panel discussion with three family office veterans, we explored how various family offices were handling the COVID-19 pandemic. When asked how families were approaching wealth planning in light of low interest rates and reduced asset values, our panelists noted increased interest in the use of grantor-retained annuity trusts (GRATs). GRATs are frequently used to help reduce estate and gift taxes by removing assets and their appreciation from the grantor’s estate. If used correctly, they can allow grantors to gift appreciated assets tax-free.
This type of trust poses some nuanced income and capital gains tax management concerns. In this paper we explore these concerns in light of the current economic downturn and renewed possibility of rising tax rates. We also explore how GRATs can incorporate a Parametric Custom Core® portfolio.