Saturday, June 17, 2000

Savvy strategies

Trusts can pare taxes on estates

        Problem: You want to keep some income from your assets, but still keep a lid on your estate tax bill.

        Strategy: Set up a Qualified Personal Residence Trust (QPRT) or a Grantor Retained Annuity Trust (GRAT).

        Charlotte A. Dougherty, certified financial planner with Dougherty & Associates in Kenwood, says that both methods remove assets from your taxable estate, thus potentially lowering your federal estate taxes.

        The QPRT allows a homeowner to give a principal residence or vacation home to a trust established for a specific term. Legally, you transfer a remainder interest in the house and continue to live there.

        Since your kids must wait to receive the property, the IRS discounts the value of the gift. For example, the house currently worth $500,000 could be considered a gift of $203,000. If the house appreciates, the trust will produce bigger savings since it freezes the kids' interest at $203,000.

        A drawback: If you die, move or sell before the trust expires, you may lose tax advantages.

        Another kind of estate planning tool, GRATs can be used for the transfer of closely held business interests. Using this trust, you can remove an asset from your estate with reduced gift tax consequences, as well as enjoy annuity income from the asset transferred to the trust for a predetermined period of time. Family-member GRAT beneficiaries ultimately receive the gifted assets — whether stock, investments or real estate — at the end of the trust term.

        Since GRATs are irrevocable, you can't take the assets back later if you decide you need them. So be sure you can afford to lose control of those assets before placing them in the trust.

        Readers: Consider Savvy Strategies as general information only and seek the help of professionals because circumstances might vary.

        Planners: Share your unique strategies or new approaches with the Enquirer and our readers. Send your Savvy Strategies to Amy Higgins, 312 Elm St., Cincinnati, 45202 or e-mail


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