Tax Provisions in Recent Jobs Legislation -- a March 18, 2010 report by Citizens for Tax Justice –-examine “several small pieces of legislation [that] address joblessness.” The report provides the following information on how H.R. 4849 -- Small Business and Infrastructure Jobs and Tax Act – would modify the rules regarding GRATs:
Prevents a scheme used to avoid gift and estate taxes. (Requires minimum 10-year term for GRATs).
Ten-year revenue gain: $4.5 billion
A person owning an asset with a quickly rising value may want to find some way to "lock in" its current value for purposes of calculating estate and gift taxes before it rises any further. One way is to place the asset in a certain type of trust (a Grantor Retained Annuity Trust, or GRAT) that pays an annuity for a certain time and then leaves whatever assets remain to the trust's beneficiaries. The gift to the trust's beneficiaries is valued when the trust is set up, rather than when it's received by the beneficiaries. This benefit is particularly difficult to justify when the trust has a very short term (perhaps just a couple years) and wealthy people have used such short-term trusts to aggressively reduce or even eliminate any tax on gifts to their children. This proposal, which is included in President Obama's budget plans, would require a GRAT to have a minimum term of 10 years, increasing the chance that the grantor will die during the GRAT's term and the assets will be included in the grantor's estate.
Is a short-term GRAT a "scheme used to avoid gift and estate taxes," a planning opportunity, or both? Citizens for Tax Justice's mission includues "[r]equiring the wealthy to pay their fair share." This might explain the tone of the otherwise informative report.
For more on H.R. 4849 see H.R. 4849 would revise Sec. 2702 rules regarding GRATs.