For some clients, an alternative strategy GRATs will be sales to defective grantor trusts, which, if properly constructed, can achieve much of the same tax efficiencies of GRATs. Unlike GRATs, however, a sale to a defective grantor trust is not defined by IRS code, planner note. That means their creation is usually a more complex and time-consuming process.
Sales to defective grantor trusts do hold some advantages, Hirschon says. If a grantor dies, for example, all of the trust's assets are not transferred to the grantor's estate. But the technique is not as simple and straightforward as using a GRAT.
"The benefit of the GRAT, for now, is that it is statutory, so if you follow the regs you are not going to be challenged by the IRS," Hirschon says.
In the final analysis, planners say, the fact that GRATs will no longer be a clean, swift remedy to client wealth transfer needs means that advisors will have to get back to the business of being careful in their approach. "It becomes even more important to have a competent advisor who knows you well and really understands the goals you have for your family and successive generations," Schlueter says.