You have no doubt heard the phrase that nothing in this life is certain except death and taxes…
While this may be generally true, there are, of course, some tax loopholes.
Obviously, no one wants to pay more in taxes than they have to and this is where tax loopholes come in.
Here are a few…
Avoiding The Estate Tax
This one challenges the very notion of paying taxes upon our death for the money left behind to our heirs.
Basically, it is possible to avoid paying taxes on money left to your heirs by taking advantage of a technique known as the Walton grantor retained annuity trust (GRAT). This was developed by a lawyer named Richard Covey in response to changes made in the 1990 tax code.
GRATs work by shifting large amounts of stock into a trust fund that is legally required to return that initial investment after two years. The stocks in the trust gain enough value that when it comes time to repay the initial investment, there is a substantial amount of stock left over that can be transferred on to a third party without triggering the gift tax.
The idea is that a client can put money into a trust with instructions to return the entire amount to themselves within two years. Since you do not need to pay tax on a gift to yourself, there is no gift tax incurred. This has been termed ‘zeroing out’ a trust.