There has been a lot of talk recently in the media about the Facebook IPO and how company insiders are avoiding paying taxes on their earnings from it. The tools that they are using are called. Grantor Retained Annuity Trusts (GRATs). They can be an excellent way for wealthy people to transfer assets.
A GRAT has a set term of at least two years, and the granter loses control of the assets for the length of the term. The granter receives an annual payment from the Trust plus a return on investment income at an interest rate fixed by the IRS. When the term of the Trust expires, the Trust assets pass to the Trust beneficiaries. You can name another Trust as the beneficiary or a person. GRATs even allow you to name future children or grandchildren as beneficiaries.
GRATs are not for everyone, as the granter loses control of the Trust assets until the term of the Trust expires. However, for some people, they are a great solution to lower the tax burdens associated with wealth transfer. For example, it is estimated that the Facebook insiders will save approximately $200 million in taxes. If you are ever in a position to receive wealth from a stock offering, talk to an attorney about setting up a GRAT.