Cover Story

The Estate Tax Eliminator


A wealthy parent with millions invested in the stock market wants to leave future earnings to his kids and avoid the estate tax on those earnings.

1. The parent sets up a Grantor Retained Annuity Trust, or GRAT, listing the kids as beneficiaries.

2. The parent contributes, say, $100 million to the GRAT. Under the terms of the GRAT, the amount contributed to the trust, plus interest, must be fully returned to the parent over a predetermined period.

3. Whatever return the money earns in excess of the interest rate—the IRS currently requires 3 percent—remains in the trust and gets passed on to the heirs free of estate and gift taxes forever.

Executives Who Do It
• GE CEO Jeffrey Immelt
• Nike CEO Philip Knight
• Morgan Stanley CEO James Gorman

Next: The Trust Freeze

Drucker is a reporter-at-large for Bloomberg News.

We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus