United States: Year-End Estate Planning Strategies for Today’s Economic Times

Last Updated: October 25 2010

Article by Donna E. Morgan , Howard M. McCue, III , Daniel W. Luther , Barbara R. Grayson , James A. Casey , Richard A. Campbell and C. Wells Hall, III

Originally published October 20, 2010

Keywords: estate planning, gift tax, generation-skipping transfer tax, GST, Grantor trusts, GRAT, annuity

Many have referred to this period as a "perfect storm" for estate planning. That is due to the generally low value of many assets, low interest rates, the historically low gift tax rate and the repeal of the generation-skipping transfer tax (GST). There is some uncertainty as to the possibility of retroactive changes to the transfer tax laws, but at this writing retroactive changes—or indeed any changes that might be effective before the end of 2010—appear unlikely. The estate planning techniques described below are based on current tax laws, which are subject to change at any time.

Substantial Gifts to Children and Grandchildren. You should consider making large gifts to children and grandchildren, even if that may mean paying a gift tax. Currently, the gift tax rate is at an all-time low of 35 percent. In addition, if you make a gift directly to a grandchild this year, that gift will not be subject to the additional GST tax, which is repealed for 2010 only. In the past, that tax has been imposed at a rate of 45 percent to 55 percent and is scheduled to be 55 percent in 2011. Generally, any gifts you make now (plus all the appreciation) will be out of your estate at your death and not subject to the estate tax (also scheduled to be 55 percent starting in 2011).

GRATs. A grantor retained annuity trust (GRAT) would enable you to make a gift to your children without incurring gift taxes or using your gift tax exemption. With a GRAT, you would transfer assets you expect to appreciate to a trust which would pay you an annuity for a term of years. The annuity is calculated so that the present value of the annuity is equal to the value of assets you transfer to the GRAT. If you are living at the end of the term of years, the assets pass to your children (or to trusts for them) without any gift taxes. Essentially, you have transferred the appreciation on the assets to your children with no gift tax. For example, assume you transfer an asset with a value of $1 million to a four-year GRAT and retain the right to receive back an annuity of about $250,000 per year for four years. If that $1 million asset has appreciated at a rate of 10 percent per year, your children would receive approximately $265,000 at the end of the four-year period. This would be the result even though you had not paid any gift taxes or used any of your gift tax exemption.

Sales to Grantor Trusts. Another very effective technique is to establish a grantor trust for the benefit of your descendants, which means that you are responsible for paying the income taxes on the income earned by the trust assets. This enables the trust assets to grow income tax-free for the benefit of your children and grandchildren. Also, the grantor trust status allows you to sell assets to the trust without having any income tax effects. Typically, the assets are sold in exchange for a promissory note that bears a very low rate of interest as announced monthly by the IRS, with the assumption that the trust assets will grow at a higher rate. Another example might help. Assume you sell an asset with a value of $1 million to a grantor trust in exchange for a nine-year promissory note bearing an interest rate of 1.75 percent. If that $1 million asset has appreciated at a rate of 10 percent per year for those nine years, after you are paid back the interest and principal on the note, the grantor trust for the benefit of your children and grandchildren would hold assets with a value of approximately $1 million at the end of the nine-year period. Again, this would be the result even though you had not paid any gift taxes or used any of your gift tax exemption.

Valuation. Any transfer by you to your children, grandchildren, to GRATs or to grantor trusts will be enhanced if the transfer is of assets to which a valuation discount could be applied, such as closely-held stock or other non-marketable or restricted assets. Many families choose to establish limited partnerships to pool their investment assets and typically those partnership interests can be discounted. For example, if you make a gift of a 10 percent interest in a limited partnership that has an aggregate value of $10 million, then the value of your gift for gift tax purposes should not be $1 million but more likely will be in the range of $650,000 to $750,000.

2010 is an optimum time to make these kinds of transfers. That is because of the perfect storm referenced earlier: generally low values for many asset classes, low interest rates and the low gift tax rate. Further, the tax laws are uncertain, and there may be more legislative changes before the end of 2010. There have been proposals to bring back 2009 estate, gift and generation-skipping laws, and there has been legislation proposed that would prohibit tax-free GRATs as well as eliminate discounting for intra-family transfers.

Learn more about our Wealth Management: Trusts, Estates & Foundations practice.

Visit us at www.mayerbrown.com.

Copyright 2010. Mayer Brown LLP, Mayer Brown International LLP, Mayer Brown JSM and/or Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. All rights reserved.

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions