HERESY OR PROPHECY: THE CASE FOR LIMITING ESTATE TAX INCLUSION OF GRATS TO THE ANNUITY PAYMENT RIGHT

The controversy over the extent to which a grantor retained annuity trust, or GRAT, is included in the grantor's taxable estate when the grantor dies within the GRAT's primary term is examined. A discussion of the nature of GRATs and how they are commonly used today is presented. The pertinent parts of the controlling statutes, Treasury Regulations, existing cases, and rulings of the IRS to evaluate whether, when, and to what extent a GRAT includes a right to income that, by itself, would cause estate tax inclusion, are reviewed. A possible savings clause and other techniques for designing and administering GRATs to minimize the amount subject to inclusion in the grantor's taxable estate is provided.