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Facebook Founders Use GRAT's to Reduce Estate Tax Bite

Yesterday we posted a story about how one of the founders of Facebook was planning to renounce his citizenship to avoid US Income Taxes (which only works if you also plan on living outside of the US and giving up any protections of citizenship). Multiple Facebook insiders are taking a much less drastic approach to tax reduction, as this article from the Wall Street Journal explains. As the article points out, the use of Grantor Retained Annuity Trusts, or GRAT’s, is nothing revolutionary in the tax and estate planning world. There are various techniques like this which utilize the time value of money to reduce the value of assets transferred to family members and trusts for the benefit of family members. The idea behind the GRAT’s (and other techniques, such as QPRT’s for the transfer of real estate) is that the owner gives away a “temporal” portion of the asset; in other words, they are giving away a future use of the asset and retaining some present use of the asset for themselves. The end result is that they are allowed to use the value of only the future use of the asset for tax reporting purposes, a value which is much less than the value of an outright gift of both the present and future use of the property. There are very technical rules for this type of planning. A qualified tax attorney should be consulted if you feel your tax situation could benefit from a discounted gifting strategy such as a GRAT.