House Bill Threatens Grantor Retained Annuity Trusts (GRATS)

June 24, 2010

Recently, the House of Representatives passed HR 5486, the . The bill contains the identical provisions regarding Grantor Retained Annuity Trusts (GRATs) that were contained in an earlier bill (HR 4849, the Small Business and Infrastructure Jobs Tax Act of 2010), which the House passed on March 24, 2010. One of the provisions of this bill would, if signed into law, preclude GRATs with terms of less than 10 years. Currently, the term for GRATs could be less than 10 years.

H.R. 4849 would also technically forbid so-called "zeroed-out" GRATs by requiring all GRATs to constitute a taxable gift of an amount greater than $0. Clients could still, under the bill in its current form, establish GRATs with a nominal gift tax value, but the inability to "zero-out" the GRAT completely would effectively require taxpayers to report all GRATs to the IRS.
While a separate version needs to be passed by the Senate and subsequently worked through in joint committee before it becomes law, the provisions of H.R. 4849 would become effective at such time as the law is enacted. In addition, there is some speculation that the bill may be changed prior to final enactment to make these requirements effective retroactively to some earlier date.

For more information, contact your Perelson Weiner partner.

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