Intergenerational GRATs: Moving Wealth to Grandchildren and Beyond

Abstract

The main focus of the article is that an intergenerational “rolling” grantor retained annuity trust (GRAT) strategy can pass more wealth to remote descendants than more common techniques, including an installment sale to an intentionally defective grantor trust (IDGT). Though the authors recognize the traditional limits to GRAT structures, they suggest that an intergenerational rolling GRAT strategy can move assets beyond the next generation,as it allows wealth to be moved from one generation to the next, and the one following, using rolling GRATs. They use sophisticated quantitative modeling to see how the effectiveness of a sale to an IDGT compares with a series of intergenerational GRATs. They find that given enough time, the intergenerational GRAT strategy not only passes more wealth to a client’s grandchildren, but also reduces the size of the client’s own estate much more effectively.

TOPICS: Wealth management, legal/regulatory/public policy