[0:01] Welcome to plan on it.
[0:07] Hello, everyone, and welcome back to plan on it with attorney Christopher E.
[0:12] Body, board certified specialists in a state planning trust and probate law.
[0:17] Chris has more than 30 years of experience helping individuals and families protect what
[0:22] they've built.
[0:23] I'm Sean O'Connor, and today we are continuing our advanced planning series, and in addition
[0:30] to Chris Body, we have attorney Chris Michael here whose focus is on advanced state planning
[0:35] strategies for higher net worth families and complex estates.
[0:40] In today's deep dive episode, we're talking about grantor retained annuity trusts, commonly
[0:45] known as grats, and how they may be used as part of a larger wealth transfer strategy.
[0:51] This is going to be another interesting episode.
[0:54] Chris, Chris, Christopher, Chris, the Chris is good to see you both.
[0:58] Hey, Sean.
[0:59] Great to see you.
[1:00] Thank you for having us.
[1:02] Absolutely.
[1:03] I'm loving this first deep dive into grats.
[1:06] I'm not familiar with grats.
[1:08] How about we just start with explaining what a grantor retained annuity trust is?
[1:15] First off, it's an irrevocable trust.
[1:18] Most of these advanced planning techniques are irrevocable trusts for various specific reasons.
[1:23] With a grantor retained annuity trust, the purpose of it is you fund it with a very specific
[1:28] type of asset that ideally is highly appreciable.
[1:33] Any of that appreciation beyond a federal interest rate would actually pass to your beneficiaries
[1:40] without any gift in the state tax implications.
[1:44] We'll obviously jump into the weeds of it.
[1:46] There's a lot of details, but essentially it's a great technique to avoid having to gift
[1:52] anything outright and also to avoid that as state tax when you pass away.
[1:57] Got it.
[1:58] Yeah.
[1:59] I mean, I almost bristle at the irrevocable term.
[2:03] I know we'll get into the specifics of what some of this means, but it's like, what?
[2:10] What?
[2:11] I'm losing control.
[2:12] What's happening?
[2:13] How do people usually realize they've reached the point where a grant might make sense?
[2:21] What's the trigger there?
[2:23] The operative word is grantor retained, right?
[2:25] It's irrevocable, but there is also a lot of control that the grantors do retain throughout
[2:31] the process.
[2:32] Oh, good.
[2:33] But you know you're going to need it when you start exceeding assets as an individual over
[2:39] 15 million and then a couple over 30 million, but when you especially have assets that are
[2:44] very highly appreciable, it doesn't even have to be.
[2:49] You have two year grads and then you have 20 year grads.
[2:53] You can swap assets.
[2:55] You can do anything you want.
[2:56] So there's some myriad of options available with these grads, but it really comes down to
[3:02] getting close to that $15 million threshold as of 2026 and then 30 million for a couple.
[3:08] You said highly appreciative assets, right?
[3:12] A couple of examples.
[3:15] So concentrated stocks in the video, alphabet, things that are clearly just exploding right
[3:20] now.
[3:21] Pre-IPO, SpaceX is a good example if you happen to have those holdings, closely held businesses
[3:26] where clearly there is a lot of profit coming in and it's privately held stock.
[3:32] So they're just the various types of assets that would be great for this type of structure.
[3:39] And what's the main goal of using a grant?
[3:42] So with all of this, it's the void gifting while you're alive and then of course the estate
[3:46] tax when you pass away.
[3:48] But the way that it's structured, you want to focus one on the type of asset that it's going
[3:52] to be funded.
[3:54] And then two, that magic hurdle rate, what they call a 7520 rate.
[3:59] And that is set by the IRS, it's a federal rate.
[4:03] And why that's so crucial is because as long as that asset appreciates higher than that 7520
[4:11] rate, that anything beyond whatever that asset appreciates above is going to pass your
[4:17] beneficiaries free of the estate tax and the gift tax.
[4:20] So basically what that means is you're getting those annuity payments back.
[4:26] And there are actually ways to structure those two where you can start with a smaller annuity
[4:30] and actually grow over time.
[4:33] And of course those interest rates are going to come back as well.
[4:36] So it's going to be both of those coming back to you.
[4:40] And then anything that that asset is actually appreciating beyond that 7520 rate just goes
[4:45] to your beneficiaries with no, you don't have to file what they call a 709 for the gift
[4:50] tax.
[4:51] And then when you pass away, it's not going to be includeable in your state.
[4:54] And so it's a great technique to really avoid any of those unwanted tax liabilities that
[5:02] could really hold.
[5:05] That's affecting that generational wealth, if you're having to pay a 40% tax on that.
[5:10] Yeah.
[5:11] Anything you want to add to that, Chris, buddy?
[5:14] So Chris, the rate itself right now is currently published at what number?
[5:17] So it's 5% as of May of 2026.
[5:20] Before during quantitative easing and essentially zero interest rates, it was a little bit lower
[5:25] as between two and three percent during the pandemic it got as low as 0.4%, which is wild.
[5:30] So you have to keep that in mind that these assets have to appreciate beyond five, right
[5:35] now it's 5%, which is particularly relatively high.
[5:40] So you sometimes have to wait out on that or find an asset that will appreciate beyond
[5:44] that.
[5:46] Yeah, but if you're looking at pre-IPO stock, like you think let's use SpaceX as an example,
[5:49] they're talking about the largest IPO in history of the world and just think about like
[5:54] it's going that that stock, once issued, is going to appreciate greater than 5% per
[5:58] year.
[5:59] And so all that growth, that exponential growth, 10 times, 100 times X of the original issuance
[6:05] price is going to like state these day tax.
[6:07] So it's profoundly, it's profound in terms of what it's capable of doing when you have
[6:13] that kind of appreciation.
[6:14] So you have the right type of asset that's ready to launch, so to speak, using an analogy
[6:19] for SpaceX, then you can really, you know, protect that future growth.
[6:24] It's like, and it completely keep it outside the estate tax itself.
[6:29] So it's an amazing technique when you have that kind of scenario.
[6:32] And I mean, is the grant just, as created, just uniquely qualified for these assets that
[6:39] are going to increase significantly?
[6:42] Like why?
[6:43] Why are grants so often used in this context?
[6:46] So what are the most common ones is called zeroed out rolling grant?
[6:50] And those are very short term ones, you know, two to three years.
[6:53] And I think a lot of people would actually like those because they may want to see it play
[6:57] out as well.
[6:59] And it actually does provide that level of control because you're not giving up those assets
[7:03] at all.
[7:04] Typically, you're not going to be selling, say, you have a, some sort of stock, some sort
[7:09] of concentrated stock, like the video or alphabet, you may not want to be selling it.
[7:14] So there's no capital gains tax implications.
[7:17] But during that period, you may want to see, okay, I want to see how this plays out.
[7:20] If it, sure, you said a 75, 20 hurdle rate of 5%.
[7:26] But the video increases by 10%.
[7:29] That 5% increase, you know, difference between the hurdle rate and the appreciable stock.
[7:34] It just goes to your beneficiaries outright.
[7:37] No questions asked, essentially.
[7:39] And there's so much beauty to that where it's short.
[7:42] So it gives them time, you know, at least you can see it play out.
[7:45] And then, you know, you can play with it.
[7:48] You can do a 10 year grant.
[7:49] You can do a 20 year grant.
[7:50] So there's just so many options with these grants.
[7:54] That's interesting.
[7:57] And yeah, so you could, I mean, do clients sometimes do that?
[8:01] We're like, let's just, let's just role play it.
[8:03] So let's like prototype one.
[8:05] Let's help me understand how this thing works.
[8:08] And you do one of the short ones.
[8:11] And they're like, ah, I mean, is that sort of a process that's typical for folks
[8:14] that are new to this kind of planning?
[8:17] Absolutely.
[8:17] I think that you want to see the media investment.
[8:21] You're putting into it, just, you know, structuring these types of grants.
[8:25] And as soon as you see the payout, you realize that you just, you just say,
[8:30] you could save hundreds of thousands if not millions, but dollars just by doing
[8:34] a two year or three year grant.
[8:36] And so there's so much value to just seeing it play out.
[8:39] And it's, I think it is a good strategy to start with advanced planning,
[8:42] just so you can see what it entails, what it under, what, what does this mean, right?
[8:48] Well, what does it mean to avoid the estate tax or the gift tax?
[8:51] And so you'll see it.
[8:52] You can crunch the numbers and you'll see, oh my god, we just saved, you know,
[8:57] $2 million dollars, just like that, which is very central.
[9:00] Yeah, well, I mean, you've kind of explained like, okay, you know,
[9:05] what's going to happen?
[9:07] Assets inside the grant, they perform very well during the trust term.
[9:12] You know, is there other ramifications?
[9:15] Like, can it, can it do too well?
[9:17] You know, like, is there no?
[9:20] No, the only really, the only downside of a grad is if you passed away during that period.
[9:27] And that's why these two year, two and three year grads should, you know,
[9:30] it should be a good way to start, especially if someone is older.
[9:34] Because if they passed away during that period, it may be include that, you know,
[9:37] those assets may be includeable in their state.
[9:39] Aside from that, if the asset doesn't actually even get over that hurdle rate,
[9:44] and it is considerably lower than that 7520 hurdle rate,
[9:48] there's no, there really is no implications.
[9:50] It just goes back, you receive those annuity payments back,
[9:53] and it's as though you never did anything.
[9:54] Okay.
[9:55] And then if there isn't an asset, so you say you set up a 10, 20 year grant,
[10:01] and the asset isn't really appreciating at the rate that you want to,
[10:05] you can actually swap assets.
[10:07] So there's a power of substitution that you can build in to actually put in an asset,
[10:11] and that's an amazing, amazing strategy to really help people to make sure
[10:15] that they're using an asset that is going to hurt, you know, pass that hurdle rate.
[10:20] And one other thing was, if we're closely held businesses,
[10:24] you can actually get a discount, a discount evaluation that the IRS allows
[10:28] between 20 to 40%, which itself is already providing immense tax savings.
[10:33] So there's just, there's merely, again, there's just various ways that you're going to be
[10:37] saving on taxes immediately.
[10:40] I got, I wish I had 30 million in the bank, and I could save another five.
[10:45] It's a great problem to have when you have, you know, these types of problems,
[10:52] because you've got significant assets, and you know, and you can have more than one grant.
[10:56] So like, again, you can test the waters, the shorter term one, see the benefits,
[11:01] and go from there.
[11:02] It's just one of many, many techniques that are available.
[11:04] There's so many different ways to structure these.
[11:06] And so it's almost limitless, in a sense, what your options are.
[11:10] So it's a six, it's the bottom line is that you have to look at.
[11:14] Do I have an asset that is going to appreciate and call you?
[11:17] And if I leave it in my estate, it's going to run through a 40% the tax rate.
[11:22] Do I want to, do I want to expose that asset to that tax?
[11:25] Or is there a way I can potentially keep that out of my estate and transfer that wealth
[11:29] onto my next generation?
[11:31] And I've all that appreciation escape the estate tax system.
[11:34] And that's where they work their magic.
[11:36] I feel like we touched on it a little bit.
[11:39] But besides, or addition to estate tax benefits.
[11:43] So there are other reasons that, you know, you'd recommend a grant to clients.
[11:48] Yeah, Chris and I actually just spoke about this.
[11:51] And it is the income taxes.
[11:53] And so if that asset is generating any income taxes or capital gain,
[11:57] you're selling an asset and it's generating any capital gain tax,
[12:00] the grantor is going to be paying those taxes.
[12:02] It doesn't have to fall on those beneficiaries to pay those taxes.
[12:06] So again, it's their income taxes, capital gain taxes, the state taxes,
[12:11] gift taxes.
[12:12] There's so much value to these grads that once you start seeing it play out,
[12:18] you realize how beneficial it can be for the family.
[12:23] It sounds like a powerful tool.
[12:25] The actual mileage may vary, you know?
[12:27] Like, are there, you know, people like to assume people, I'm new to this, right?
[12:32] What are some of the risks or limitations?
[12:35] Certainly that people should understand before considering a grad, you know, high level.
[12:40] They need to be close to those estate tax exemptions that give tax exemption.
[12:45] There wouldn't be any reason to do it because sometimes people are told to do it.
[12:49] Maybe they only have $5 million in wealth and they're told let's get it started now.
[12:53] It may be a little too soon to go through the process because it just,
[12:58] it makes much more sense when you're actually getting closer to those exemption limits.
[13:02] But again, it really comes down to working with their financial advisor,
[13:08] particularly or maybe a tax professional that they work with,
[13:10] just to make sure that they have assets that will make sense for the grad.
[13:14] Because you don't want to fund, you don't want to walk in an asset into those trusts.
[13:18] Obviously, there is that power of substitution at least.
[13:21] But maybe their portfolios, primarily an asset that just,
[13:25] it's slow growing like real estate and not, you know, quickly appreciable.
[13:31] So just, it really just depends on what, you know, maybe their financial advisor,
[13:36] advisor may recommend a certain sort of, you know, investment that they have.
[13:41] And so really, that is sort of the downside is, and I don't see it as a downside, obviously.
[13:45] It is just, yeah, I'm asking if they're trying to figure out what assets are going to be the best for these grads.
[13:50] Got it. Yeah, I mean, it's not some, you're not going to lose the house, so to speak.
[13:53] It's just a matter of like, okay, you know, where does it?
[13:56] Where do you get the most leverage in?
[13:59] Because I assume it takes some time to set the stuff up.
[14:02] Exactly. Yeah.
[14:04] And you can show, like, with, with, with spreadsheet, so you can predict, like, you know,
[14:10] just be conservative investment returns, what the net result will be when you run numbers.
[14:15] And so if you're like a numbers person, and when you get to that level of net worth,
[14:19] you better be a numbers person.
[14:20] Otherwise, you're just digging your add in the sound and you're going to ignore it.
[14:23] And then you're going to have a massive tax liability.
[14:25] But if you're a numbers person, and you can, we can run these, these spreadsheets that show,
[14:30] this is the net effect of this kind of planning technique.
[14:33] And when you see it on paper, it's, it's very powerful.
[14:37] And it's not for everybody, of course.
[14:39] And, but, you know, it's one of many choices.
[14:41] And we'll get into other choices down the road in this podcast series.
[14:45] But it's certainly something to be considered.
[14:47] Yeah, no, I like that.
[14:49] And as we just kind of wrap it up here time-wise,
[14:52] kind of zooming back out a little bit, you know, in the larger estate plan,
[14:57] where, where does a grant fit alongside some of the other advanced planning strategies,
[15:02] some of which, you know, most of which we haven't really gotten into yet in the series,
[15:06] but just generally, where's the grant slot in?
[15:09] Well, just think of it, it's one of the tools you have to deploy.
[15:12] I mean, there's multiple tools.
[15:13] And so you've got that foundation built, which is the solid, you know,
[15:17] typically revokeable living trust and all the other documents that go with that.
[15:21] And then you're like, okay, I need to add another floor to my foundation.
[15:25] That could be the first floor, for example.
[15:27] And there could be additional floors added with other techniques.
[15:30] And so it's just a tool that you can deploy,
[15:33] depending if the situation warrants that type of asset that warrants that type of structure.
[15:38] And so it's, there's lots of choices.
[15:40] And so when you approach advanced planning, you, you, again, with an open slate,
[15:45] you're just like, okay, what are your objectives?
[15:47] What are the assets that you have and we have a conversation?
[15:52] So it's one of many things that you can potentially deploy.
[15:56] It's part of a strategy to transfer of wealth without unnecessary taxation.
[16:00] Excellent. Well, guys, we're about out of time.
[16:05] I know we'll talk again, and I look forward to getting into more of these individualized tools
[16:11] and strategies that you're both bringing to the floor for your clients.
[16:18] Any final thoughts before we turn off the lights?
[16:23] I think just get ready for the alphabet suit of trust that exists because there's a ton of them.
[16:30] The driver, of course, is like, okay, if I pass today,
[16:35] is there going to be a massive tax liability?
[16:36] The answer is yes, you might want to start exploring this stuff, right?
[16:39] And so that's the, that's the trigger.
[16:41] There's the state tax liability, which is pretty easy to calculate.
[16:44] So well, I mean, I think, and we're all guilty of this from,
[16:48] regardless of level of wealth is the procrastination and kicking it down the road,
[16:53] especially some of this stuff that's like about end of life for, you know, state planning.
[16:56] It's like, I don't want to deal with that.
[16:58] Or I'm fine, I'll do it tomorrow.
[16:59] It's, you know, and I know just from talking to you guys and other knowledgeable attorneys,
[17:05] it's like, just make the call, do the thing.
[17:08] If I know, you know, it's not that hard.
[17:10] And then it's actually interesting.
[17:11] I find once you get into it, you know, so thanks for sharing your expertise.
[17:16] Really appreciate it.
[17:17] You're welcome.
[17:18] Thanks, John.
[17:19] You bet.
[17:20] Talk to you soon.
[17:21] That's it for today's episode of plan on it with attorneys Christopher Body and Chris Michael
[17:26] to access more resources, including upcoming estate planning workshops and educational materials.
[17:32] Visit their website bodylaw.com.
[17:35] As always, thanks for listening and do us a solid and leave some thumbs up.
[17:41] Maybe a review share a link with someone in your world who would benefit from advanced state planning.
[17:47] And as always, I hope you have a great day.
[0:07] Hello, everyone, and welcome back to plan on it with attorney Christopher E.
[0:12] Body, board certified specialists in a state planning trust and probate law.
[0:17] Chris has more than 30 years of experience helping individuals and families protect what
[0:22] they've built.
[0:23] I'm Sean O'Connor, and today we are continuing our advanced planning series, and in addition
[0:30] to Chris Body, we have attorney Chris Michael here whose focus is on advanced state planning
[0:35] strategies for higher net worth families and complex estates.
[0:40] In today's deep dive episode, we're talking about grantor retained annuity trusts, commonly
[0:45] known as grats, and how they may be used as part of a larger wealth transfer strategy.
[0:51] This is going to be another interesting episode.
[0:54] Chris, Chris, Christopher, Chris, the Chris is good to see you both.
[0:58] Hey, Sean.
[0:59] Great to see you.
[1:00] Thank you for having us.
[1:02] Absolutely.
[1:03] I'm loving this first deep dive into grats.
[1:06] I'm not familiar with grats.
[1:08] How about we just start with explaining what a grantor retained annuity trust is?
[1:15] First off, it's an irrevocable trust.
[1:18] Most of these advanced planning techniques are irrevocable trusts for various specific reasons.
[1:23] With a grantor retained annuity trust, the purpose of it is you fund it with a very specific
[1:28] type of asset that ideally is highly appreciable.
[1:33] Any of that appreciation beyond a federal interest rate would actually pass to your beneficiaries
[1:40] without any gift in the state tax implications.
[1:44] We'll obviously jump into the weeds of it.
[1:46] There's a lot of details, but essentially it's a great technique to avoid having to gift
[1:52] anything outright and also to avoid that as state tax when you pass away.
[1:57] Got it.
[1:58] Yeah.
[1:59] I mean, I almost bristle at the irrevocable term.
[2:03] I know we'll get into the specifics of what some of this means, but it's like, what?
[2:10] What?
[2:11] I'm losing control.
[2:12] What's happening?
[2:13] How do people usually realize they've reached the point where a grant might make sense?
[2:21] What's the trigger there?
[2:23] The operative word is grantor retained, right?
[2:25] It's irrevocable, but there is also a lot of control that the grantors do retain throughout
[2:31] the process.
[2:32] Oh, good.
[2:33] But you know you're going to need it when you start exceeding assets as an individual over
[2:39] 15 million and then a couple over 30 million, but when you especially have assets that are
[2:44] very highly appreciable, it doesn't even have to be.
[2:49] You have two year grads and then you have 20 year grads.
[2:53] You can swap assets.
[2:55] You can do anything you want.
[2:56] So there's some myriad of options available with these grads, but it really comes down to
[3:02] getting close to that $15 million threshold as of 2026 and then 30 million for a couple.
[3:08] You said highly appreciative assets, right?
[3:12] A couple of examples.
[3:15] So concentrated stocks in the video, alphabet, things that are clearly just exploding right
[3:20] now.
[3:21] Pre-IPO, SpaceX is a good example if you happen to have those holdings, closely held businesses
[3:26] where clearly there is a lot of profit coming in and it's privately held stock.
[3:32] So they're just the various types of assets that would be great for this type of structure.
[3:39] And what's the main goal of using a grant?
[3:42] So with all of this, it's the void gifting while you're alive and then of course the estate
[3:46] tax when you pass away.
[3:48] But the way that it's structured, you want to focus one on the type of asset that it's going
[3:52] to be funded.
[3:54] And then two, that magic hurdle rate, what they call a 7520 rate.
[3:59] And that is set by the IRS, it's a federal rate.
[4:03] And why that's so crucial is because as long as that asset appreciates higher than that 7520
[4:11] rate, that anything beyond whatever that asset appreciates above is going to pass your
[4:17] beneficiaries free of the estate tax and the gift tax.
[4:20] So basically what that means is you're getting those annuity payments back.
[4:26] And there are actually ways to structure those two where you can start with a smaller annuity
[4:30] and actually grow over time.
[4:33] And of course those interest rates are going to come back as well.
[4:36] So it's going to be both of those coming back to you.
[4:40] And then anything that that asset is actually appreciating beyond that 7520 rate just goes
[4:45] to your beneficiaries with no, you don't have to file what they call a 709 for the gift
[4:50] tax.
[4:51] And then when you pass away, it's not going to be includeable in your state.
[4:54] And so it's a great technique to really avoid any of those unwanted tax liabilities that
[5:02] could really hold.
[5:05] That's affecting that generational wealth, if you're having to pay a 40% tax on that.
[5:10] Yeah.
[5:11] Anything you want to add to that, Chris, buddy?
[5:14] So Chris, the rate itself right now is currently published at what number?
[5:17] So it's 5% as of May of 2026.
[5:20] Before during quantitative easing and essentially zero interest rates, it was a little bit lower
[5:25] as between two and three percent during the pandemic it got as low as 0.4%, which is wild.
[5:30] So you have to keep that in mind that these assets have to appreciate beyond five, right
[5:35] now it's 5%, which is particularly relatively high.
[5:40] So you sometimes have to wait out on that or find an asset that will appreciate beyond
[5:44] that.
[5:46] Yeah, but if you're looking at pre-IPO stock, like you think let's use SpaceX as an example,
[5:49] they're talking about the largest IPO in history of the world and just think about like
[5:54] it's going that that stock, once issued, is going to appreciate greater than 5% per
[5:58] year.
[5:59] And so all that growth, that exponential growth, 10 times, 100 times X of the original issuance
[6:05] price is going to like state these day tax.
[6:07] So it's profoundly, it's profound in terms of what it's capable of doing when you have
[6:13] that kind of appreciation.
[6:14] So you have the right type of asset that's ready to launch, so to speak, using an analogy
[6:19] for SpaceX, then you can really, you know, protect that future growth.
[6:24] It's like, and it completely keep it outside the estate tax itself.
[6:29] So it's an amazing technique when you have that kind of scenario.
[6:32] And I mean, is the grant just, as created, just uniquely qualified for these assets that
[6:39] are going to increase significantly?
[6:42] Like why?
[6:43] Why are grants so often used in this context?
[6:46] So what are the most common ones is called zeroed out rolling grant?
[6:50] And those are very short term ones, you know, two to three years.
[6:53] And I think a lot of people would actually like those because they may want to see it play
[6:57] out as well.
[6:59] And it actually does provide that level of control because you're not giving up those assets
[7:03] at all.
[7:04] Typically, you're not going to be selling, say, you have a, some sort of stock, some sort
[7:09] of concentrated stock, like the video or alphabet, you may not want to be selling it.
[7:14] So there's no capital gains tax implications.
[7:17] But during that period, you may want to see, okay, I want to see how this plays out.
[7:20] If it, sure, you said a 75, 20 hurdle rate of 5%.
[7:26] But the video increases by 10%.
[7:29] That 5% increase, you know, difference between the hurdle rate and the appreciable stock.
[7:34] It just goes to your beneficiaries outright.
[7:37] No questions asked, essentially.
[7:39] And there's so much beauty to that where it's short.
[7:42] So it gives them time, you know, at least you can see it play out.
[7:45] And then, you know, you can play with it.
[7:48] You can do a 10 year grant.
[7:49] You can do a 20 year grant.
[7:50] So there's just so many options with these grants.
[7:54] That's interesting.
[7:57] And yeah, so you could, I mean, do clients sometimes do that?
[8:01] We're like, let's just, let's just role play it.
[8:03] So let's like prototype one.
[8:05] Let's help me understand how this thing works.
[8:08] And you do one of the short ones.
[8:11] And they're like, ah, I mean, is that sort of a process that's typical for folks
[8:14] that are new to this kind of planning?
[8:17] Absolutely.
[8:17] I think that you want to see the media investment.
[8:21] You're putting into it, just, you know, structuring these types of grants.
[8:25] And as soon as you see the payout, you realize that you just, you just say,
[8:30] you could save hundreds of thousands if not millions, but dollars just by doing
[8:34] a two year or three year grant.
[8:36] And so there's so much value to just seeing it play out.
[8:39] And it's, I think it is a good strategy to start with advanced planning,
[8:42] just so you can see what it entails, what it under, what, what does this mean, right?
[8:48] Well, what does it mean to avoid the estate tax or the gift tax?
[8:51] And so you'll see it.
[8:52] You can crunch the numbers and you'll see, oh my god, we just saved, you know,
[8:57] $2 million dollars, just like that, which is very central.
[9:00] Yeah, well, I mean, you've kind of explained like, okay, you know,
[9:05] what's going to happen?
[9:07] Assets inside the grant, they perform very well during the trust term.
[9:12] You know, is there other ramifications?
[9:15] Like, can it, can it do too well?
[9:17] You know, like, is there no?
[9:20] No, the only really, the only downside of a grad is if you passed away during that period.
[9:27] And that's why these two year, two and three year grads should, you know,
[9:30] it should be a good way to start, especially if someone is older.
[9:34] Because if they passed away during that period, it may be include that, you know,
[9:37] those assets may be includeable in their state.
[9:39] Aside from that, if the asset doesn't actually even get over that hurdle rate,
[9:44] and it is considerably lower than that 7520 hurdle rate,
[9:48] there's no, there really is no implications.
[9:50] It just goes back, you receive those annuity payments back,
[9:53] and it's as though you never did anything.
[9:54] Okay.
[9:55] And then if there isn't an asset, so you say you set up a 10, 20 year grant,
[10:01] and the asset isn't really appreciating at the rate that you want to,
[10:05] you can actually swap assets.
[10:07] So there's a power of substitution that you can build in to actually put in an asset,
[10:11] and that's an amazing, amazing strategy to really help people to make sure
[10:15] that they're using an asset that is going to hurt, you know, pass that hurdle rate.
[10:20] And one other thing was, if we're closely held businesses,
[10:24] you can actually get a discount, a discount evaluation that the IRS allows
[10:28] between 20 to 40%, which itself is already providing immense tax savings.
[10:33] So there's just, there's merely, again, there's just various ways that you're going to be
[10:37] saving on taxes immediately.
[10:40] I got, I wish I had 30 million in the bank, and I could save another five.
[10:45] It's a great problem to have when you have, you know, these types of problems,
[10:52] because you've got significant assets, and you know, and you can have more than one grant.
[10:56] So like, again, you can test the waters, the shorter term one, see the benefits,
[11:01] and go from there.
[11:02] It's just one of many, many techniques that are available.
[11:04] There's so many different ways to structure these.
[11:06] And so it's almost limitless, in a sense, what your options are.
[11:10] So it's a six, it's the bottom line is that you have to look at.
[11:14] Do I have an asset that is going to appreciate and call you?
[11:17] And if I leave it in my estate, it's going to run through a 40% the tax rate.
[11:22] Do I want to, do I want to expose that asset to that tax?
[11:25] Or is there a way I can potentially keep that out of my estate and transfer that wealth
[11:29] onto my next generation?
[11:31] And I've all that appreciation escape the estate tax system.
[11:34] And that's where they work their magic.
[11:36] I feel like we touched on it a little bit.
[11:39] But besides, or addition to estate tax benefits.
[11:43] So there are other reasons that, you know, you'd recommend a grant to clients.
[11:48] Yeah, Chris and I actually just spoke about this.
[11:51] And it is the income taxes.
[11:53] And so if that asset is generating any income taxes or capital gain,
[11:57] you're selling an asset and it's generating any capital gain tax,
[12:00] the grantor is going to be paying those taxes.
[12:02] It doesn't have to fall on those beneficiaries to pay those taxes.
[12:06] So again, it's their income taxes, capital gain taxes, the state taxes,
[12:11] gift taxes.
[12:12] There's so much value to these grads that once you start seeing it play out,
[12:18] you realize how beneficial it can be for the family.
[12:23] It sounds like a powerful tool.
[12:25] The actual mileage may vary, you know?
[12:27] Like, are there, you know, people like to assume people, I'm new to this, right?
[12:32] What are some of the risks or limitations?
[12:35] Certainly that people should understand before considering a grad, you know, high level.
[12:40] They need to be close to those estate tax exemptions that give tax exemption.
[12:45] There wouldn't be any reason to do it because sometimes people are told to do it.
[12:49] Maybe they only have $5 million in wealth and they're told let's get it started now.
[12:53] It may be a little too soon to go through the process because it just,
[12:58] it makes much more sense when you're actually getting closer to those exemption limits.
[13:02] But again, it really comes down to working with their financial advisor,
[13:08] particularly or maybe a tax professional that they work with,
[13:10] just to make sure that they have assets that will make sense for the grad.
[13:14] Because you don't want to fund, you don't want to walk in an asset into those trusts.
[13:18] Obviously, there is that power of substitution at least.
[13:21] But maybe their portfolios, primarily an asset that just,
[13:25] it's slow growing like real estate and not, you know, quickly appreciable.
[13:31] So just, it really just depends on what, you know, maybe their financial advisor,
[13:36] advisor may recommend a certain sort of, you know, investment that they have.
[13:41] And so really, that is sort of the downside is, and I don't see it as a downside, obviously.
[13:45] It is just, yeah, I'm asking if they're trying to figure out what assets are going to be the best for these grads.
[13:50] Got it. Yeah, I mean, it's not some, you're not going to lose the house, so to speak.
[13:53] It's just a matter of like, okay, you know, where does it?
[13:56] Where do you get the most leverage in?
[13:59] Because I assume it takes some time to set the stuff up.
[14:02] Exactly. Yeah.
[14:04] And you can show, like, with, with, with spreadsheet, so you can predict, like, you know,
[14:10] just be conservative investment returns, what the net result will be when you run numbers.
[14:15] And so if you're like a numbers person, and when you get to that level of net worth,
[14:19] you better be a numbers person.
[14:20] Otherwise, you're just digging your add in the sound and you're going to ignore it.
[14:23] And then you're going to have a massive tax liability.
[14:25] But if you're a numbers person, and you can, we can run these, these spreadsheets that show,
[14:30] this is the net effect of this kind of planning technique.
[14:33] And when you see it on paper, it's, it's very powerful.
[14:37] And it's not for everybody, of course.
[14:39] And, but, you know, it's one of many choices.
[14:41] And we'll get into other choices down the road in this podcast series.
[14:45] But it's certainly something to be considered.
[14:47] Yeah, no, I like that.
[14:49] And as we just kind of wrap it up here time-wise,
[14:52] kind of zooming back out a little bit, you know, in the larger estate plan,
[14:57] where, where does a grant fit alongside some of the other advanced planning strategies,
[15:02] some of which, you know, most of which we haven't really gotten into yet in the series,
[15:06] but just generally, where's the grant slot in?
[15:09] Well, just think of it, it's one of the tools you have to deploy.
[15:12] I mean, there's multiple tools.
[15:13] And so you've got that foundation built, which is the solid, you know,
[15:17] typically revokeable living trust and all the other documents that go with that.
[15:21] And then you're like, okay, I need to add another floor to my foundation.
[15:25] That could be the first floor, for example.
[15:27] And there could be additional floors added with other techniques.
[15:30] And so it's just a tool that you can deploy,
[15:33] depending if the situation warrants that type of asset that warrants that type of structure.
[15:38] And so it's, there's lots of choices.
[15:40] And so when you approach advanced planning, you, you, again, with an open slate,
[15:45] you're just like, okay, what are your objectives?
[15:47] What are the assets that you have and we have a conversation?
[15:52] So it's one of many things that you can potentially deploy.
[15:56] It's part of a strategy to transfer of wealth without unnecessary taxation.
[16:00] Excellent. Well, guys, we're about out of time.
[16:05] I know we'll talk again, and I look forward to getting into more of these individualized tools
[16:11] and strategies that you're both bringing to the floor for your clients.
[16:18] Any final thoughts before we turn off the lights?
[16:23] I think just get ready for the alphabet suit of trust that exists because there's a ton of them.
[16:30] The driver, of course, is like, okay, if I pass today,
[16:35] is there going to be a massive tax liability?
[16:36] The answer is yes, you might want to start exploring this stuff, right?
[16:39] And so that's the, that's the trigger.
[16:41] There's the state tax liability, which is pretty easy to calculate.
[16:44] So well, I mean, I think, and we're all guilty of this from,
[16:48] regardless of level of wealth is the procrastination and kicking it down the road,
[16:53] especially some of this stuff that's like about end of life for, you know, state planning.
[16:56] It's like, I don't want to deal with that.
[16:58] Or I'm fine, I'll do it tomorrow.
[16:59] It's, you know, and I know just from talking to you guys and other knowledgeable attorneys,
[17:05] it's like, just make the call, do the thing.
[17:08] If I know, you know, it's not that hard.
[17:10] And then it's actually interesting.
[17:11] I find once you get into it, you know, so thanks for sharing your expertise.
[17:16] Really appreciate it.
[17:17] You're welcome.
[17:18] Thanks, John.
[17:19] You bet.
[17:20] Talk to you soon.
[17:21] That's it for today's episode of plan on it with attorneys Christopher Body and Chris Michael
[17:26] to access more resources, including upcoming estate planning workshops and educational materials.
[17:32] Visit their website bodylaw.com.
[17:35] As always, thanks for listening and do us a solid and leave some thumbs up.
[17:41] Maybe a review share a link with someone in your world who would benefit from advanced state planning.
[17:47] And as always, I hope you have a great day.
