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Retained Income Trusts

August 1, 2011

John Jastremski Presents:

 

Retained Income Trusts
Introduction

retained income trust is a type of irrevocable trust, whereby an individual (called the grantor) transfers assets to a trust and then retains an interest for a period of time or for life. Theretained interest may be the right to receive payments, or it may be the right to use the property in the trust. At the end of the retained interest period, the property in the trust passes to the remainder beneficiaries of the trust.

Retained income trusts are valuable estate planning tools because the value of the initial transfer into the trust may be able to be discounted for federal gift tax purposes, subject to certain requirements. The size of the discount will depend on the length of the retained interest and the applicable federal interest rate that must be used to discount the gift. Furthermore, if the grantor outlives the term of the retained interest, then the assets, including any appreciation in the assets, are not included in his or her gross estate. Thus, transferring assets into a retainedincome trust can be an excellent way to remove assets (especially appreciating assets) from your estate while allowing you to receive a benefit from those assets for a certain period of time.
What are the different types of retained income trusts?
Grantor retained annuity trust (GRAT)

With a GRAT, the payment you receive will be an annuity, which is a fixed amount. The payments from the trust to you may be made once a year or more often, if you desire.
Grantor retained unitrust (GRUT)

With a GRUT, the payment you receive will be a fixed percentage of the value of the assets in the trust determined annually. Thus, if the value of the assets in the trust increases, then the payments to you will increase as well. The payments from the trust to you may be made once a year or more often, if you desire.
Grantor retained income trust (GRIT)

GRIT differs from a GRAT or a GRUT because transfers generally cannot be made to family members. For discounts to apply to transfers to family members, a GRAT or GRUT must be used. However, there is a significant exception for transfers of a personal residence. You can transfer your personal residence to a GRIT and name family members as the remainder beneficiaries. This special type of GRIT is known as a qualified personal residence trust (QPRT).

GRITs can also be useful estate planning tools for unmarried couples.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, Jeremy Keating, Erik J Larsen, Frank Esposito, Patrick Ray, Robert Welsch, Michael Reese, Brent Wolf, Andy Starostecki and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com,  access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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