GRATs and Grandkids

Grantor Retained Annuity Trusts are a great technique to leverage gifts to children without gift tax. They are not used for grandchildren (skipped generation), because you cannot allocate GST (generation skipping transfer) exemption to avoid the GST tax on gifts to grandchildren until the GRAT is over, and the property presumably appreciated. If you’ve used up your $1 million lifetime gift exclusion, made no gifts to grandchildren, and don’t contemplate future large gifts to grandchildren, you might use a GRAT to leverage gifts to grandkids even if the allocation of GST exemption at the end of the GRAT term is inefficient. Caution: estimate the growth in GRAT assets to avoid exceeding the $2 million GST exclusion at the end.