Economic flows of Cascading GRATs
Example
Value of initial transfer to GRAT $50,000,000 IRS discount rate 1.60% Number of GRATs 4 Length of strategy 5 years Annuity rate 51.20% Escalating annuity percentage 0% Term of individual GRATs 2 years
Future IRS discount rate 1.60% Note: Assumes grantor survives all GRAT terms
Note: Model does not include income taxes; the ongoing income taxes generated by the trust are paid by the grantor, income tax implications should be carefully considered
Note: Model assumes all annuity payments are made in cash
GRAT First Year
50,000,000 25,601,587 38,710,413 32,929,786
12,743,825 21,180,642 34,224,114
Appreciation
7,500,000 3,840, 238 5,806, 562 4,939,468
0 11,081,587 5,674, 124 8,579,456 7,298, 286
(25,601,587) (13, 108, 825) (19,820, 960) (16,861,096)
0 11,081,587 18,417,950 29,760,099
41,522,399
31,898,413 16,333,000 24,696,014 21,008, 158
42,184,364
4,784,762 2,449,950 3,704,402 3,151,224
36,682,056 16,861,096
Pre-tax annual return of asset
Return 15.00% 15.00% 15.00% 15.00% 15.00%
GRAT Second Year Appreciation
Annuit (25,601,587) (13, 108,825) (19,820, 960) (16,861,096)
36,682,056 59,045,460
Numbers have been rounded for convenience, are only estimates for illustrative purposes and should not be relied upon. Corporate insiders should consult with securities counsel as to any reporting issues under Section 16 of the Securities Exchange Act of 1934 associated with receiving shares in-kind.
Note: Above example is for illustrative purposes only. These materials should not be construed as providing legal, tax or accounting advice. GRATs involve complex tax and, in the case of insiders, securities laws issues that should be discussed with your own advisors and company counsel. Annuity will be paid for full term to the grantor or, in case of the grantor’s death, to the grantor’s estate. Calculation is based on 2000 Tax Court ruling in Walton v. Commissioner (115 T.C. No. 41
(Dec. 22, 2000).
J.P Morgan
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