House Passes Legislation with GRAT Limitations

HR 5486 – Small Business Jobs Tax Relief Act of 2010

On June 15, 2010, the House of Representatives passed HR 5486, the “Small Business Jobs Tax Relief Act of 2010,” by a vote of 247–170. One of the revenue raising provisions in HR 5486 is the same as the provision contained in HR 4849 on Grantor Retained Annuity Trusts (GRATs), a revenue raising provision that is expected to raise $5 billion. The provision would impose the following limitations on GRATs, effective as of the date of enactment of the legislation:

  • the minimum term of the GRAT is ten years;
  • the fixed annuity amount cannot be less than the prior year’s amount during the first 10 years of the trust term; and
  • the remainder interest must have a value greater than zero determined as of the date of the asset transfer to the GRAT.

HR 4849 passed the House in March but has not yet passed the Senate. The same provision on GRATS was also included in the Obama Administration Budget Proposals for Fiscal Year 2011. Now that HR 5486 has also passed the House, it is becoming more likely that the limitations on GRATS will become law this year, which increases the urgency for individuals who may be considering creating particularly short-term GRATs.

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