Latest on Grantor Retained Annuity Trusts (GRATs)

Fiscal Year 2011 Budget.

The Fiscal Year 20011 Budget [7.31 MB PDF] estimated a savings of $2.959B from restricting GRATs.  See p.164, Summary Tables.  (Special thanks to Kenneth W. Kossoff, Panitz & Kossoff, LLP, for calling this to my attention in a comment to a blog entry.)

111th Congress. 

Three bills.  Three bills that would restrict GRATs have been introduced in the 111th Congress:

• H.R.4849
  • Introduced by Rep. Sandy Levin [R-TX] on 3/16/10; 17 cosponsors.
  • Estimated Revenue Effects of H.R. 4849
  • The JCT report -- JCX-13-10 (3/16/10) -- describes H.R. 4849.  It has an excellent summary of GRATs. (Pages 46 through 48 [starting on page 48 of the PDF]).
  • House Report 111-447, which was reported by the House Ways and Means Committee on March 19, 2010, provides an in-depth explanation of H.R. 4849.  (See this post for highlights.)
  • See H.R. 4849 would revise Sec. 2702 rules regarding GRATs, Future of the Federal Estate Tax (3/18/10).
  • 3/17/10: Approved by House Ways & Means Committee.
  • 3/24/10: Passed by a vote 246 - 178.
• H.R.5486 / H.R. 5297
  • Estimated Revenue Effects of H.R. 5486
  • Summary of H.R. 5486 by the House Ways and Means Committee
  • 6/15/10: H.R. 5486 was passed by vote of 247-170.  See here.
  • 6/17/10: H.R. 5486 was made a part of H.R. 5297.  See here for more details.
  • 6/18/10: H.R. 5297 was received in the Senate and read for the first time.  See here.
  • 6/23/10: H.R. 5297 was read for the second time and placed on the Senate Legislative Calendar.  See here.  
• S 3533 A bill to amend the Internal Revenue Code of 1986 to reinstate estate and generation-skipping taxes, and for other purposes.
  • Exemption? $5M.
  • Rate?
    • For estates above $3.5M and below $10M: 45%.
    • For estates above $10M and below $50M: 50%
    • For estates above $50M: 55%.
    • For estates above $500M: 10% surtax.
  • Would close loopholes by  
    • requiring consistent valuation for transfer and income tax purposes
    • modifying the rules on valuation discounts
    • requiring 10-year minimum term for Grantor Retained Annuity Trusts (GRATS)
  • Would protect family farmers by allowing them to lower the value of their farmland for estate tax purposes by up to $3 million (indexed for inflation).
  • Would benefit farmers and other landowners by by amending estate tax rules for conservation easements through an increase in the maximum exclusion amount to $2 million and increasing the base percentage to 60%.
  • Introduced by Sen. Bernard Sanders [D-VT] on June 24, 2010; 4 cosponsors: Sen. Sherrod Brown [D-OH]; Sen. Al Franken [D-MN]; Sen. Tom Harkin [D-IA]; Sen. Sheldon Whitehouse [D-RI].
  • See my following blog posts on this bill 
    • Sen. Sanders: press release and video on S.3533 (6/25/10)
    • Unemployment and the death of billionaire Dan Duncan free of the estate tax motivate liberal senators to introduce S.3533 (6/25/10)
    • In Forbes article, Janet Novack reports, Three Senators Call For Billionaire Estate Surtax (6/24/10)
    • Paul Caron reports that a number of Senators plan to introduce a new estate tax bill- $3.5m exemption, 55% top rate & 10% billionaire's surtax (6/24/10)

Notes on H.R. 4849 and H.R. 5486.

Identical language.  The language of H.R. 4849 and H.R. 5486 relating to GRATs is identical.  A a side-by-side comparison of the language in H.R. 4849 and H.R. 5486 proposing to restrict GRATs can be found here. 

Similar voting.  The voting on these bills was similar.  Side-by-side charts showing how representatives votes can be found here.

Changes the bills would make.  The changes H.R. 4849 and H.R. 5486 would make to IRC section 2702 are visually demonstrated through the following downloads, which I prepared:

• Section 2702 as it reads today -- Download 2702 00 - Text
• The changes H.R. 4849 (or H.R. 5486) would make -- Download 2702 01 - HS - Track Changes
• How section 2702 would read if H.R. 4849 (or H.R. 5486) became law -- Download 2702 02 - HS – Modified

Possible criticism of the bills.  Revenue estimates have increased the savings that restricting GRATs would provide: 

• Fiscal Year 2011 Budget: $2.959B
• H.R. 4849: $4.450B
• H.R. 5486: $5.297B

See this blog post and its comments for a possible explanation or possible criticism: How much revenue would limiting GRATs raise over 10 years: $4.450 billion (H.R. 4849) or $5.297 billion (H.R. 5486)?  

Planning tip.  "There is a window of opportunity to set up [short-term] GRATs."  Ashlea Ebeling, Goodbye GRATs?, Forbes, March 24, 2010.  (Ebeling’s article was blogged about here.)

The Future of GRATs. 

Below are excerpts from the latest posts from Future of the Federal Estate Tax on GRATs.  (The headlines are listed in reverse chronological order: the most recent headline is the first one.)

[Headlines are updated automatically.  The notes on GRATs above them were last updated on: 6/25/10. If you want to go beyond the headlines above, all my posts on GRATs are aggregated under this category: GRATs.]