If the only thing standing between your heirs and their inheritance is the hefty gift taxes you'd have to pay upon transferring your wealth, consider establishing a Grantor Retained Annuity Trust (grat). A GRAT is a trust that allows you to retain ownership of an asset while passing most of the gains it earns to your heirs—free of gift and estate taxes. GRATs are especially attractive now. While they have long been used to minimize gift taxes on wealth passed to the next genera- tion, a recent court ruling lets grats avoid these onerous taxes altogether, Meanwhile, thanks to today's low interest rates, the assets you put into a grat don't have to grow much in order for your heirs to see a payout. Finally, a GRAT can protect you if the recently repealed estate tax returns—or if you don't live to see it phased out in 2010. "For people who have wealth, it's a home run," says Kevin Flatley, an estate planning and taxation expert at FleetBoston Financial.
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