GRAT and Valuation Planning After CCA 202152018: What Practitioners Need to Know

Grantor retained annuity trusts (GRATs) provide an opportunity for your client to transfer assets that are appreciating in value to the next generation with little to no income, estate, or gift tax payments being owed. These are a type of irrevocable trust that comes with a common valuation challenge that arises for practitioners.

This presentation covers the critical impact on grantor retained annuity trusts (GRATs) based on CCA 202152018, which was released on December 30, 2021. The CCA addresses a common valuation challenge, what consideration should be given to potential sales in valuing an asset?

Often there is a long continuum from no sale, to discussions with potential buyers, to a letter of intent, to a binding contract, etc. Where the business is on the continuum will affect how an appraiser will evaluate the possible implications of the status. In the CCA the possible sale had moved too far along the continuum towards an actual sale to have been ignored in the valuation. As a result, the IRS applied the reasoning in the Atkinson, and held that the valuation was so wrong that the GRAT annuity was not qualified. This would result in a deemed gift of the entire value of the property involved.

  • What does this mean to GRAT planning generally?
  • What might this mean to the use of GRATs as valuation spillovers receptacles in a defined value mechanism?
  • Might this have implications for other aspects of defined value techniques
  • What might this CCA mean to valuations generally?
  • Are there new steps and precautions practitioners might choose to take?
  • Might this signal a broader application of the Atkinson principals to GRATs and CRTs generally?