Qualified Interest Trusts

Question 1

Purpose of Grantor Retained Trust (GRAT or GRUT)

Answer 1

Grantor transfers property but retains right to annual income payments

Question 2

GRAT/GRUT Characteristics

Answer 2

1. Irrevocable trust
2. Retains qualified income interest for term of trust (usually two to five years)
3. Remainder passes to family members at end of trust term

Question 3

GRAT/GRUT Planning Opportunity

Answer 3

• Transfer appreciating assets to family members
• while retaining an income interest

Question 4

GRAT/GRUT Gift/Income Tax consequences

Answer 4

• Income is taxed to grantor during trust term
• Value of gift at trust creation =
  
  • FMV
  • – value of grantor’s retained interest
• Gift is future interest and does not qualify for annual exclusion

Question 5

Purpose of Qualified Personal Residence Trust (QPRT)

Answer 5

• Grantor transfers personal residence to trust
• and retains the right to live in the residence during the trust term

Question 6

QPRT Characteristics

Answer 6

Residence passes to family member at end of term

Question 7

QPRT Planning Opportunity

Answer 7

Transfer appreciating residence to family members while retaining right to live in residence for specified trust term.

Grantor may repurchase or rent residence if grantor outlives trust term

Question 8

QPRT Gift/Income Tax Consequences

Answer 8

• Income is taxed to grantor during trust term for income tax purposes
• Value of gift at trust creation is FMV of residence discounted for number of years of the trust term at applicable Section 7520 rate
• Gift is future interest and does not qualify for annual exclusion