Proper estate planning is vital for Texans who wish to effectively manage their wealth and secure their family’s future. One strategy that stands out is the use of rolling Grantor Retained Annuity Trusts (GRATs) as our Houston, TX estate tax lawyer can explain. In 2024, this approach is especially beneficial for reducing estate taxes, given the current exemption levels and potential changes in tax laws.
Basics Of GRATs
A Grantor Retained Annuity Trust (GRAT) allows you to transfer assets to beneficiaries with minimal gift or estate tax costs. Here’s how it works:
• Assets are transferred into the trust.
• The grantor receives annual payments for a set period.
• Remaining assets go to beneficiaries at the end of the term.
Why Choose Rolling GRATs?
Rolling GRATs involve setting up a sequence of short-term GRATs, typically two to three years each. This approach has several notable benefits, as Stuart can share who has worked closely with these since founding his firm in 2021:
• Diversifying across multiple GRATs reduces the risk if some assets do not perform well.
• Short-term GRATs can take advantage of market upswings, potentially transferring appreciated assets tax-free.
• They offer flexibility to adjust based on changing financial circumstances and tax laws.
2024 Estate Tax Exemption
For 2024, the federal estate tax exemption is $13.61 million per person. This means individuals can transfer up to this amount without incurring federal estate taxes. However, the Tax Cuts and Jobs Act (TCJA) of 2017, which increased this exemption, is set to expire in 2026. If not extended, the exemption will decrease, potentially increasing the estate tax burden.
Making The Most Of 2024
Given the high estate tax exemption, 2024 is an opportune time to consider rolling GRATs. Key reasons include:
• Leveraging the high exemption to transfer wealth with minimal gift tax implications before the potential reduction in 2026.
• Benefiting from the relatively low IRS Section 7520 interest rates, which can make it easier for GRATs to outperform, transferring more assets tax-free.
• Proactively planning for future legislative changes to lock in current favorable tax conditions.
Steps To Implement Rolling GRATs
Setting up rolling GRATs requires strategic planning and expert guidance. Here’s how to start:
• Consult an experienced estate planning attorney to design a rolling GRAT strategy that fits your goals.
• Identify assets that are likely to appreciate, such as stocks, real estate, or business interests.
• Work with your attorney to create a series of short-term GRATs, transferring selected assets into each trust.
• Regularly review the performance of each GRAT and adjust as needed, rolling assets into new GRATs as terms end.
For Texans aiming to minimize estate taxes and ensure their wealth benefits their loved ones, rolling GRATs present a powerful estate planning option in 2024. By taking advantage of the current high estate tax exemption and preparing for potential changes in 2026, you can protect your family’s financial future. Consulting with a knowledgeable estate planning attorney is essential to successfully implement this strategy and achieve your financial objectives. Contact Stuart Green Law, PLLC to get started today; he is licensed in Texas, Kentucky, Pennsylvania, and South Dakota.