FYI
I would add very tax efficient, in the hands of someone who can structure it properly 
CFA book, page 239; depending on one’s point of view, GRAT may or may not be viewed as tax efficient and it cites two examples
volkovv Wrote: ------------------------------------------------------- > I would add very tax efficient, in the hands of > someone who can structure it properly just wanted to mention it since Schweser is very ambiguous. volkov, i have a question to you, how come GRAT is not complete from estate tax purposes? I would think that completion imply that beneficiares dont have to pay tax upon receit? I mean why GST is complete and GRAT is not from estate tax purposes :)?
krishna1 Wrote: ------------------------------------------------------- > CFA book, page 239; > > depending on one’s point of view, GRAT may or may > not be viewed as tax efficient and it cites two > examples read further it says “BUT we prefer to think of it as TAX EFFICIENT vehicle”
I agree that they have stated the preference. But I think you could make the point eitherway and state so since they are not saying that it is THE WAY to go…
csk, where did you read that GRAT is not complete from estate tax purposes? This can happen if GRAT is created defective from estate tax purposes (which is very rare), since the whole point of most GRATs is to pass funds to beneficiaries in tax efficient manner. As far as overall tax efficiency of GRATs, they are very tax efficient vehicles (from estate tax standpoint) to transfer assets to beneficiaries. I am not going to repeat what I wrote in my previous posts. The only tax inefficency of GRATs if from GRAT own standpoint, since the vehicle itself is not structured to shelter investment returns from taxes or defer them to a later period. Income inside GRAT is taxed the same way as income of individual. Similarly, if GRAT wouldn’t be set up, the grantor would have similar tax liability to what GRAT has. However, being income tax efficient is not the purpose of GRATs in the first place. Think of it this way, you have $10,000,000, which you want pass to your kids. You can do nothing about it and pass it to them through your estate, and get slammed with hefty estate tax or you can be smart about it, set up a GRAT properly, and potentially pass majority of that amount with minimal tax liability. Now wouldn’t that be tax efficient?
volkovv Wrote: ------------------------------------------------------- > csk, where did you read that GRAT is not complete > from estate tax purposes? This answered my question Just wanted to make sure i understand ‘completeness’ per se > > This can happen if GRAT is created defective from > estate tax purposes (which is very rare), since > the whole point of most GRATs is to pass funds to > beneficiaries in tax efficient manner. > > As far as overall tax efficiency of GRATs, they > are very tax efficient vehicles (from estate tax > standpoint) to transfer assets to beneficiaries. I > am not going to repeat what I wrote in my previous > posts. > > The only tax inefficency of GRATs if from GRAT own > standpoint, since the vehicle itself is not > structured to shelter investment returns from > taxes or defer them to a later period. Income > inside GRAT is taxed the same way as income of > individual. Similarly, if GRAT wouldn’t be set up, > the grantor would have similar tax liability to > what GRAT has. However, being income tax efficient > is not the purpose of GRATs in the first place. > > Think of it this way, you have $10,000,000, which > you want pass to your kids. You can do nothing > about it and pass it to them through your estate, > and get slammed with hefty estate tax or you can > be smart about it, set up a GRAT properly, and > potentially pass majority of that amount with > minimal tax liability. Now wouldn’t that be tax > efficient?