I recently got a call from a client of over 15 years, a successful business owner whose husband is a semi-retired physician, who wanted to know whether she should set up a grantor retained annuity trust. We had already done estate planning for her, and believed her plan was already good, balancing the couple's lifetime needs with their desire to be tax efficient. But I was curious about where she got the notion. She did not just wake up one morning thinking about trusts.

The purpose of this article is not to explore the advantages of GRATs. Generally speaking, they work well for older clients with grown children who want to gift large sums to those children and avoid gift taxes. (The grantor retains an annuity for a period of time and at the end of that time the asset passes to the ultimate beneficiary. If structured properly, it avoids gift and estate taxes on the amount transferred.) They are a good tool-but only as long as they are appropriate for the client's other goals.

Our client, however, called simply because the law for GRATs was likely to change. Current law permits these trusts for short periods of time, which reduces the risk of dying before the expiration date and having the assets taxed in the estate. A pending change, however, could increase the income period to a minimum of ten years. She had been advised to set up a GRAT now before the new law passed and take advantage of the shorter trust duration.

It might have been a reasonable thing to ask if it were appropriate for her. But it was not. I asked her if she had changed her goals since we'd last met only four months before. Did she and her husband now feel comfortable leaving a large sum of money to both her college-age children in three years? Furthermore, she is only in her 50s and we had agreed the last time we'd met that gifting was something they might want to consider in the future. They are also contemplating a charitable foundation. She confirmed that their goals had not changed and that it would be premature to transfer assets to her children.

So I finally asked: Where did she get the idea? Turns out she was working with an attorney to structure the sale of her business to several key employees, and he suggested that she consider the GRAT only because of the possible change in the law. He did not ask her any questions about her other goals.

I certainly have no way of knowing the attorney's motivation for giving this advice. But isn't this similar to recommending to a person who doesn't need life insurance that he should buy it now before rates go up as he ages?

A different family, who we've worked with for more than 20 years, also recently took advice from an attorney. They have three children, and one is deaf, and we had already discussed various ways the couple could take care of her needs when they die.

Originally, the couple set up an insurance trust for her, but their assets grew over the years and they dropped it because they felt that their estate was large enough to leave one-third to each child. For their disabled daughter, they wanted the money to be in a trust. They attended a seminar conducted by an attorney who specializes in special needs trusts. In a private conversation, he advised them that this was the perfect vehicle for them. But he neglected to ask them some very important questions.

They have significant assets. Did they really need to burden their daughter with the constraints of a special needs trust? One question the attorney should have asked is whether their daughter is dependent on the government or self-sufficient. As it happens, she has had a job with a local university for more than ten years.

We met with an estate attorney we have known for many years, the one who drew up the family's other documents, and the family learned they could accomplish their goals using a trust with spendthrift provisions. This attorney asked the relevant questions and advised them accordingly.

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