Tax reform passed in 2017 necessitated a reevaluation of many individual’s estate plans. It significantly increased the ability of high-net-worth individuals and families to pass wealth free of estate, gift, and generation-skipping transfer (GST) taxes, while increasing the importance of income tax planning due to changes to income tax rates and brackets, as well as standard and itemized deductions. Many of these beneficial changes are set to expire at the end of 2025, so it’s imperative to evaluate your overall family wealth plan—particularly if it incorporates existing trust planning—with today’s tax laws in mind. In many cases, borrowing or leverage can be a critical component to your existing estate planning strategies by improving or creating tax management opportunities. 

This article seeks to quantify the enhanced benefits of leverage in the following situations: (1) locking-in the appreciation of assets in a grantor retained annuity trust (GRAT) to protect from downside investment risk; (2) “restarting” a “failed” GRAT to capture future upside potential; and (3) substituting high basis assets into an intentionally defective grantor trust (IDGT) for low basis assets to preserve the potential step-up in basis at the grantor’s death. It is important to keep in mind that each situation is unique, and there is no one-size-fits-all approach to using leverage to accomplish your planning objectives.


Please see important disclosures at the end of the article.

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