Question

Paula, a single woman, transferred $2,000,000 to a GRAT naming her two sons as the remainder beneficiaries, while retaining an annuity with a present value of $860,000. If this is the only transfer that Paula made during the year, what is Paula's total taxable gift for the year?

Answer 1

$1,140,000

Step-by-step explanation:

A grantor retained annuity trust (GRAT) is used to lower taxes on financial gifts. After a certain time (it is not specified in the question) Paula's sons will receive the money left in the GRAT tax free.

To calculate Paula's taxable gift we have the total GRAT value minus the value of the annuity she retained for herself:

$2,000,000 - $860,000 = $1,140,000