Document explains a “Cascading GRAT” tax strategy and references a 2012 gift tax exemption and a Tax Court decision

How a “Cascading GRAT” strategy works G) Grantor transfers asset(s) to an irrevocable trust. Grantor may manage GRAT assets as trustee. @) Grantor pays little or no gift tax, or uses gift tax exemption*, on present value of trust remainder** Annuity payments from existing GRATs fund a new GRAT Grantor pays tax on ordinary income and realized gain earned by the trust (but not on annuity amount transferred from trust to grantor) ©; When trust term ends, remaining trust assets pass to beneficiaries free of gift tax if grantor does not survive the term, trust assets are included in the estate and subject to estate tax If necessary, grantor pays gift tax or uses gift tax exemption on transfer Grantor pays tax on ordinary income Grantor and realized gain earned by the trust Grantor transfers G) asset(s) Year 0 @) Annuity payments funds new GRAT Year 1 Anguity 1a Remaining Beneficiaries’ Estas © Trust ends G) Annuity payment funds new GRAT *Gift tax exemption in 2012 shelters up to $5,120,000 per individual of value transferred from gift tax. **Calculation based on Treasury discount rate in effect at time of funding GRAT. A recent Tax Court decision (Walton v. Commissioner, 115 T.C. No. 41 (Dec. 22, 2000)) allows GRAT to be “zeroed out,” eliminating the need to incur any gift tax. J.P Morgan 4 HOUSE_OVERSIGHT_022354