New Bill Threatens Effectiveness of Grantor Retained Annuity Trusts

Chaos continues to reign with respect to the future fate of the Federal estate, gift and generation-skipping transfer ("GST") taxes.  The conventional wisdom is that the Federal estate and GST taxes will be resurrected, but there exists wide speculation about precisely when that will happen and what form the resurrected taxes will take. 

Even as we await word from Washington about the future of the transfer tax regime, a new bill has been introduced that would prohibit one very popular technique: the short-term GRAT (Grantor Retained Annuity Trust).  On March 17, 2010, the House Ways and Means Committee passed H.R. 4849, the Small Business and Infrastructure Jobs Tax Act of 2010.  H.R. 4849 would require a minimum term of ten years for grantor retained annuity trusts.  According to the bill's effective date language, the proposal applies to transfers made after the date of enactment.

This Stroock Special Bulletin provides an overview of recent legislative proposals affecting GRATs, and some key issues relating to GRATS.