Grantor Retained Annuity Trusts Show Up in Times Report on Trumps

The Times reporters allege that the architects of the Trump family GRAT strategy enhanced GRAT performance by getting unrealistically low valuations of the assets placed inside the GRAT.

Minority Interests and Majority Interests

The Internal Revenue Service assumes that someone who owns the majority of a company, and controls it, has a more valuable asset than someone who owns a minority stake in the same company. If, for example, John Doe has a 100% stake in a company with an appraised value of $10 million, his stake might be worth $10 million. If he gives a 25% stake in the same company to each of his four children, their combined stake might be worth only $8 million.

The New York Times says the Trump family reduced its tax liability by converting Fred Trump’s 100% interest in his operations into minority interests, split among his children, right before the assets were put inside the GRATs.

Implications for Financial Professionals

The Times reporters do not suggest in the article that use of a GRAT is illegal; they simply question the valuation of the assets put in Fred Trump’s GRAT, and they raise questions about how the company ownership interests inside Fred Trump’s GRAT took the form of minority interests.

The takeaway for wealthy clients might be that a GRAT can be a powerful vehicle for reducing estate and gift taxes.

Policymakers have called for changes in the rules governing GRAT asset valuations. Sen. Bernie Sanders, for example, has proposed GRAT asset valuation changes as one of the possible “pay fors” for paying for a shift to a pure government-run health care finance system. But making changes in GRAT rules could take years, and changes in federal tax rules generally grandfather in taxpayers who have set up arrangements under the old tax rules.

— Read 5 Trump Group Long-Term Care Insurance Plan Facts, on ThinkAdvisor.

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