Michael Wagner Explains the Benefits of GRATs in Financial Planning

Recent market volatility has some investors looking toward GRATs, grantor-retained annuity trusts, as a tax-efficient opportunity to use volatility in their favor and minimize estate tax exposure. Financial Planning reached out to Omnia Family Wealth Co-Founder Michael Wagner for his take on GRATs and how they can benefit high net worth families.

According to Financial Planning, GRATs have three major tax benefits. They move assets out of a taxable estate. They don’t trigger any gift taxes for the donor. And they “freeze” the value of contributed assets, making their future appreciation free of the 40% gift tax and estate tax.

Financial Planning explains that by setting up a GRAT so that assets can be swapped in and out, investors can remove stocks that have declined in value and replace them with stable Treasury bills. The shares that declined in value are then placed into a new GRAT, which resets the two-to-three-year clock to give them time to bounce back.

For this reason, Wagner told Financial Planning that GRATs work best for single assets, like a chunk of recently fallen stock, whose value tends to rise and fall regularly. “That’s the beauty of a GRAT,” he said. “It’s embracing the volatility.”

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