Estates, Gifts & Trusts
Partial Interests - GRATS, GRUTS, QPRTs (836)
Portfolio Description
Tax Management Portfolio, Partial Interests -- GRATs, GRUTs, QPRTs (Section 2702), No. 836, addresses transfers of partial interests in property governed by Chapter 14. The Portfolio analyzes the rules for making transfers that will qualify for an exception to unfavorable valuation under § 2702 and thus minimize transfer tax, evaluates planning options, and provides sample forms for qualified transfers.
Section 2702 provides special rules to determine the amount of a gift when an individual makes a "transfer in trust" to (or for the benefit of) a "member of the individual's family" and the individual transferor or an "applicable family member" of the transferor retains an interest in the trust. In general, if § 2702 applies, the interest retained by the transferor or the family member is valued at zero so that the gift tax value of the transferred interest is equal to the full fair market value of the property. If the transfer qualifies for an exception to §2702, as a general rule, the value of the transferor's retained interest is calculated under regular gift tax rules and subtracted from the full fair market value of the property in determining the gift tax value of the transferred interest. If the transferor survives the retained term, the transferred property is not included in the transferor's gross estate for estate tax purposes. Thus, a properly structured transfer can significantly reduce transfer tax costs.
The Portfolio addresses in detail the forms of transfer that qualify for exceptions to §2702, including personal residence trusts, qualified personal residence trusts (QPRTs), grantor retained annuity trusts (GRATs), and grantor retained unitrusts (GRUTs). In addition to discussing the statutory and regulatory requirements that must be satisfied to qualify for the exceptions, the Portfolio addresses practical drafting issues and analyzes alternative planning choices that should be examined in choosing the transfer vehicle. For example, the choice between a personal residence trust and a QPRT and between a GRAT and a GRUT are discussed, as are choosing a retained term and deciding whether to obtain grantor trust status. Finally, qualified remainder interests, joint purchases and transfers of split interests, and the special rule for tangible personal property are examined. Annotated samples of a QPRT, GRAT, GRUT, and grantor retained income trust (GRIT) (which remains effective for nonfamily transfers) appear in the Worksheets.
For detailed treatment of the other components of Chapter 14, see 835 T.M., Transfers of Interests in Family Entities Under Chapter 14: Sections 2701, 2703 and 2704.
This portfolio may be cited as Blattmachr and Slade, 836 T.M., Partial Interests -- GRATs, GRUTs, QPRTs (Section 2702).
Jonathan G. Blattmachr, partner, Milbank, Tweed, Hadley & McCloy, New York, New York; former chairperson, Trusts & Estates Law Section, New York State Bar Association; member, various committees of the New York State Bar Association and the American Bar Association; member, Alaska Bar, California Bar, and New York Bar.
Mr. Blattmachr has served as a lecturer-in-law of the Columbia University School of Law and an Adjunct Professor of Law at New York University Law School . He is a Fellow and former Regent of the American College of Trust and Estate Counsel and past chair of its Estate and Gift Tax Committee. He is the author or co-author of over 100 articles and four books on estate planning topics; editor of The Chase Review (published by the Chase Manhattan Bank (N.A.)); and a former editor of Probate Notes (published by the American College of Trust and Estate Counsel).
Georgiana J. Slade, A.B., Duke University (1982); J.D., Harvard Law School (1985); partner, Milbank, Tweed, Hadley & McCloy, New York, New York; Vice-Chairman, Committee on Legislation, Trusts & Estates Section, New York State Bar Association (1992- ); member, New York State Bar Association (1986- ); member, American Bar Association (1986- ); member, New York State Bar and Pennsylvania Bar.
Ms. Slade is the author of 807 T.M., Personal Life Insurance Trusts and has written extensively on a variety of subjects, including: Blattmachr, Rivlin, and Slade, "Selection of Trustees: Tax and Other Issues, Including Sample Provisions," The Chase Review (Jan. 1995); "The Beneficiary as Trustee: A Pandora's Box, " 19 Tax Management Estates, Gifts and Trusts Journal 197 (Nov./Dec. 1994); Blattmachr and Slade, "More Than One Hundred Post-Mortem Tax Planning Elections," New York State Bar Journal (July/Aug. 1994); Blattmachr and Slade, "Administering An Estate Which Has Made the Section 6166 Election," The Chase Review (April 1993); "The Evolution of the Reciprocal Trust Doctrine Since Grace and Its Application in Current Estate Planning," 17 Tax Management Estates, Gifts and Trusts Journal 71 (May/June 1992); Blattmachr and Slade, "Building An Effective Life Insurance Trust," 129 Trusts & Estates 29 (May 1990); "Irrevocable Life Insurance Trusts -- Application of Three-Year Rule After ERTA," 15 Tax Management Estates, Gifts and Trusts Journal 47 (Mar./Apr. 1990); Blattmachr and Slade, "Current Developments Relating to Irrevocable Life Insurance Trusts," The Chase Review (April 1989); Blattmachr, Hastings and Slade, "Irrevocable Life Insurance Trusts," The Chase Review (April 1988).
