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1.3 MB
Extraction Summary
5
People
4
Organizations
0
Locations
4
Events
2
Relationships
2
Quotes
Document Information
Type:
Financial strategy document
File Size:
1.3 MB
Summary
This confidential J.P. Morgan document from the HOUSE_OVERSIGHT files explains the "Cascading GRAT" financial strategy. The strategy involves a grantor transferring assets into a series of Grantor Retained Annuity Trusts (GRATs), using annuity payments from older GRATs to fund new ones, with the goal of passing wealth to beneficiaries free of gift tax. The document notes a 2012 gift tax exemption of $5,120,000 and cites the 2000 Walton v. Commissioner case that allows for a "zeroed out" GRAT to eliminate gift tax liability.
People (5)
| Name | Role | Context |
|---|---|---|
| Grantor | Asset Holder / Trust Creator |
The individual who transfers assets into a Grantor Retained Annuity Trust (GRAT) and may also act as the trustee.
|
| Beneficiaries | Heirs / Trust Recipients |
The individuals who receive the remaining trust assets at the end of the trust term, free of gift tax.
|
| Trustee | Trust Manager |
Manages the GRAT assets. The Grantor may also serve as the trustee.
|
| Walton | Litigant |
Party in the Tax Court case 'Walton v. Commissioner' cited in the document.
|
| Commissioner | Litigant (likely IRS Commissioner) |
Party in the Tax Court case 'Walton v. Commissioner' cited in the document.
|
Organizations (4)
| Name | Type | Context |
|---|---|---|
| J.P. Morgan |
The creator of the document, as indicated by the logo.
|
|
| Treasury |
Mentioned in the context of the discount rate used for GRAT calculations.
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|
| Tax Court |
A court whose decision (Walton v. Commissioner) is cited as allowing a GRAT to be 'zeroed out'.
|
|
| HOUSE_OVERSIGHT |
Appears as a document identifier, likely referring to the House Oversight Committee.
|
Timeline (4 events)
Dec. 22, 2000
The Tax Court decision in Walton v. Commissioner (115 T.C. No. 41) was issued, which allows a GRAT to be 'zeroed out'.
N/A
End of trust term
The trust term ends, and remaining assets are transferred to the Beneficiaries' Trust.
N/A
Relationships (2)
The diagram shows that at the end of the trust term, the remaining assets pass from the trust established by the Grantor to the Beneficiaries.
Key Quotes (2)
"A recent Tax Court decision (Walton v. Commissioner, 115 T.C. No. 41 (Dec. 22, 2000)) allows GRAT to be "zeroed out," eliminating the need to incur any gift tax."Source
HOUSE_OVERSIGHT_022354.jpg
Quote #1
"if grantor does not survive the term, trust assets are included in the estate and subject to estate tax"Source
HOUSE_OVERSIGHT_022354.jpg
Quote #2
Full Extracted Text
Complete text extracted from the document (1,482 characters)
How a "Cascading GRAT" strategy works
1 Grantor transfers asset(s) to an irrevocable trust. Grantor may manage GRAT assets as trustee.
2 Grantor pays little or no gift tax, or uses gift tax exemption*, on present value of trust remainder**
3 Annuity payments from existing GRATs fund a new GRAT
4 Grantor pays tax on ordinary income and realized gain earned by the trust (but not on annuity amount transferred from trust to grantor)
5 When trust term ends, remaining trust assets pass to beneficiaries free of gift tax
- if grantor does not survive the term, trust assets are included in the estate and subject to estate tax
- if grantor does not survive the term, trust assets are included in the estate and subject to estate tax
[Diagram Elements]
Grantor transfers asset(s) (1) -> GRAT 1 (Year 0)
(2) If necessary, grantor pays gift tax or uses gift tax exemption on transfer
(4) Grantor pays tax on ordinary income and realized gain earned by the trust
GRAT 1 -> Annuity 1a -> GRAT 2 (Year 1)
(3) Annuity payments funds new GRAT
GRAT 1 -> Annuity 1b -> (5) Remaining assets -> Beneficiaries' Trust (Trust ends)
GRAT 2 -> Annuity 2a -> GRAT 3
(3) Annuity payment funds new GRAT
Grantor transfers asset(s) (1) -> GRAT 1 (Year 0)
(2) If necessary, grantor pays gift tax or uses gift tax exemption on transfer
(4) Grantor pays tax on ordinary income and realized gain earned by the trust
GRAT 1 -> Annuity 1a -> GRAT 2 (Year 1)
(3) Annuity payments funds new GRAT
GRAT 1 -> Annuity 1b -> (5) Remaining assets -> Beneficiaries' Trust (Trust ends)
GRAT 2 -> Annuity 2a -> GRAT 3
(3) Annuity payment funds new GRAT
CONFIDENTIAL
*Gift tax exemption in 2012 shelters up to $5,120,000 per individual of value transferred from gift tax.
**Calculation based on Treasury discount rate in effect at time of funding GRAT. A recent Tax Court decision (Walton v. Commissioner, 115 T.C. No. 41 (Dec. 22, 2000)) allows GRAT to be "zeroed out," eliminating the need to incur any gift tax.
**Calculation based on Treasury discount rate in effect at time of funding GRAT. A recent Tax Court decision (Walton v. Commissioner, 115 T.C. No. 41 (Dec. 22, 2000)) allows GRAT to be "zeroed out," eliminating the need to incur any gift tax.
J.P.Morgan
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HOUSE_OVERSIGHT_022354
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