(H.R. 5486) Passage of legislation exempting income from investments in small businesses and restricting the use of granter retained annuity trusts (“GRATS, “ which allow individuals to transfer wealth to family members without paying a gift or estate tax) by requiring that they have a 10-year minimum term
house Roll Call 363
Jun 15, 2010
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This was a vote on passage of legislation exempting income from investments in small businesses. In addition, the bill restricted the use of granter retained annuity trusts (GRATS). GRATS essentially allow individuals to transfer wealth to family members without paying a gift or estate tax. By setting up a trust that is passed onto a beneficiary (which must be a family member), wealthy individuals can facilitate a considerable transfer of wealth without being subject to the normal tax penalties that apply to such transfers. If the individual dies before the GRAT’s term expires, the family member receives the remaining value of the trust. The bill would limit the use of these financial instruments by requiring a minimum 10-year terms for GRATS. Requiring a 10-year minimum term would make GRATS a riskier option for older people who may not survive for a full decade. In other words, a 10-year GRAT requires far more financial risk than a two or three-year GRAT. Forbes’ Ashlea Ebeling explained the rationale this way: “The House bill would require a GRAT to last a minimum of 10 years. That increases the risk the person setting it up will die during the term of the GRAT, making GRATS less attractive for the older folks who typically set them up.” |
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