Jeffrey Epstein and GRATs

In the News • Feb 13, 2021

Jeffrey Epstein was back in the news in 2021. This time, the focus was on a unique and sophisticated estate planning technique called a GRAT. We had previously provided insight on Jeffrey Epstein’s estate and potential creditors of the now deceased Palm Beach resident. So, what is a GRAT? Why are Florida families and trustees litigating about these Florida trusts?

Jeffrey Epstein GRATs. *Families, beneficiaries and even trustees litigate over millions and millions of dollars in so called GRATs –a complex estate planning technique for wealthy Florida families.*

What is a Florida GRAT?

What is a Florida GRAT? GRAT is short for Grantor Retained Annuity Trust. “It’s a fantastic, low risk estate planning technique that can literally save millions, even billions, in estate taxes if done correctly” says Palm Beach trust litigator John Pankauski. And Pankauski should know. After all, he was reading the IRS federal regulations on GRATs back in the early 90’s and writing them for wealthy clients over 20 years ago. Today, he doesn’t write or draft GRATs. He and the handful of expert litigators at his firm now only litigate and handle appeals for GRATs.

Jeffrey Epstein GRATs

With a GRAT, the creator, or settlor of a special trust irrevocably transfers property to her trustee. The grantor of the GRAT retains, or keeps, an annuity stream for a fixed term–such as a number of years. With a properly drafted or written GRAT, the savings can be amazing. But you also need the right family asset and a good appraiser. Why do these things matter? Because the amount that is transferred (or “gifted”) for federal gift tax (or estate tax) purposes can be very small — sometimes even zero. That technique is referred to as “zero-ing out a GRAT.” So, what is the connection between Jeffrey Epstein and GRATs? Well, back on January 26, 2021, the New York Times reported that Epstein used GRATs with his wealthy clients.

IRS + GRATs

On January 11, 2021, the IRS updated a publication intended to inform the public about Abusive Trust Tax Evasion Schemes – Special Types of Trusts.

Can you use GRATs incorrectly or illegally? Sure you can– anything “good” can turn bad, very bad, if it is used improperly. And running afoul of the IRS is not a good idea. The good news is that a lot of information about GRATs are available, including commentary from the IRS, which also provides, in some instances, forms. Do you have a valuable residence that you want to leave to a loved one such as a child? Pankauski says to consider Qualified Personal Residence Trusts or QPRTs. For more on this estate planning technique called a GRAT, you can also read the United States Code, or 26 CFR 2702.