According to IRS estate tax filing statistics in 2010, stocks, bonds, and real estate accounted for 62% of assets as a percentage of gross estate.  This statistic shows that many individuals hold various investments and real estate as part of their estates at the time of their deaths.  So how important is it to protect these type of assets from estate taxes?  Consider the following statistic:  the IRS collected just over $21 Billion in estate taxes in FY 2009.  Many of these individuals probably failed to engage in smart, proactive estate planning.  With smart estate planning, you can avoid losing large portions of your estate to taxation.  The following are several options you can consider to reduce your estate’s potential tax liability.

A Grantor Retained Annuity Trust (GRAT) and a Grantor Retained Unitrust (GRUT) are two types of trust plans used to implement smart tax planning into your estate plan. If you have a large amount of investments or assets, it would be smart to utilize estate planning methods that can minimize the amount you will pay in estate and gift taxes. A GRAT and a GRUT are irrevocable trusts established for a set period of time. You will obtain income benefits from your investments as a beneficiary of these trusts, after which the trusts expires and the assets remaining in trust pass on to your descendants. If your income from the trust is set at a fixed dollar amount based on a percentage of the initial value of the trust, it is a GRAT. If your income from the trust is established based on a percentage of the value of the trust (being reevaluated each year), it is a GRUT. One of the other major benefits of the GRAT/GRUT is that the gift to your descendants is excluded from your estate and frozen from future growth. This makes them ideal for property and investments that are growing in value.

For additional reading:

The Always Dependable “Death Tax”

Common Estate Planning Pitfalls

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