(Dow Jones) A popular kind of trust that lets people pass money to family members free of federal gift tax is likely to get a boost from the new tax deal passed by lawmakers. The bill does not mention the trusts, easing fears that the government would limit them.
It also makes clear that the estate tax is back, and the $5 million exemption the bill adopts for the next two years gives the wealthy a good sense of how much they need to put into grantor retained annuity trusts, or GRATs, and other trusts to protect their estates.
GRATs are a much used estate-planning tool, recommended by tax advisers and particularly in demand recently because of low interest rates and asset values.
They have been in government sights, though. In March, the U.S. House of Representatives passed a bill with a provision that would have limited some of their tax benefits. A bill that failed in the Senate earlier this month would have required that GRATs be set up for a minimum 10-year term, making them much less attractive.
While many people did set up GRATs this year, others were on the fence, waiting to see how Congress would weigh in. Nevertheless, President Barack Obama signed the bill into law Friday.
Now, some hedge-fund and private-equity executives who sat on GRAT plans during the estate tax repeal this year, are "moving forward because they see more certainty on the horizon," says John O. McManus, an estate lawyer in New York.
Another group likely to move on GRATs includes middle-aged business owners, some with children already in the business, who are ready to start passing the baton to the next generation.
Elizabeth Schlueter, head of wealth advisory at J.P. Morgan Private Wealth Management, says she has had conversations about GRATs with many business owners. One man in his 50s, whose business has done well and looks set to thrive in the future, has laid the groundwork for a GRAT that will hold interests in the company.
The man, says Schlueter, is likely to "execute after the bill is passed."
Indeed, families are likely to "treat this as an opportunity to use GRATs while the law is favorable and interest rates are low," says Matt Brady, head of wealth advisory, Barclays Wealth, Americas.