High-level wealth planning illustration showing assets transferring into a trust to build generational wealth

By: Matthew Morrow, Founder and President of Munroe Morrow Wealth Management

 

You’ve built significant wealth. Your focus needs to shift from saving and accumulating to reducing your future estate taxes and passing your wealth down to the next generation.

 

Grantor Retained Annuity Trust (GRAT) can be one of the most effective tools to reduce future estate taxes and build generational wealth for families expecting to have an estate worth over $30,000,000.

 

What is a GRAT?

A GRAT allows you to transfer assets, like company stock, into a trust for a set term. You receive annual annuity payments from the trust during the set term.  There is no gift involved and no impact to your federal estate tax lifetime exemption.

Any growth above the IRS’s assumed interest rate passes to your heirs free of additional gift or estate tax when the term ends.

 

Real Client Example: Pre-IPO Stock and a 2-Year GRAT

We recently helped a client with significant pre-IPO company stock set up a 2-year GRAT.

The client transferred $3,000,000 of stock into the GRAT and will receive two annual annuity payments of $1,613,000.

At the end of the 2-year GRAT term, any gains above the withdrawals would be left to grow in trust for the next generation.

Following the stock’s IPO, the client’s stock position had appreciated 3x, giving the GRAT a value over $9,000,000. The client was able to sell the appreciated stock within the GRAT, locking in their profits and reinvesting the proceeds in a balanced allocation.

After the clients receive their final annual payment of $1,613,000 (total payments of $3,226,00) at the end of the two-year term, the remaining balance in the GRAT will transfer into an Irrevocable Trust for their children.

In this example, the clients would be able to move over $6,000,000 out of their estate.

 

The Long-Term Impact

Over the long run, the $6,000,000 Irrevocable Trust is growing for the benefit of their children and forever out of the couple’s estate.

Over a 20-year period and a 6% growth rate, this $6,000,000 could grow to over $20,000,000, saving the family $8,000,000 in federal estate taxes!

This is powerful legacy planning.

 

Are you taking full advantage of the right strategies to preserve and grow your wealth for the next generation? Munroe Morrow Wealth Management helps ultra-high-net-worth families turn complex assets into long-term, tax-efficient legacy planning. Schedule a Conversation.