ILITs can take advantage of the annual exclusion so that these contributions do not incur any gift tax. The grantor can make annual contributions to the ILIT to pay insurance premiums. ILITs are used to provide life insurance to a beneficiary tax-free. Second, the grantor can sell assets to the IDGT without any income tax consequences, thus freezing the value of the transferred assets in the grantor's estate and moving the appreciation from those assets to the IDGT. First, the grantor can continue to pay the income tax liability of the IDGT, allowing the assets of the trust to grow tax-free without additional taxable gifts from the grantor. This is because IDGTs are for the benefit of someone other than the grantor or the grantor's spouse, so distributions from the IDGT are not included in either estate. IDGTs are a similar concept to SLATs, except that they completely remove all of the assets from the grantor's and spouse's estates.

The distributions from the SLAT to the spouse will be included in the spouse's estate, but the remaining assets will not be included in either spouse's estate. These are a good tool to remove appreciation of the assets from the grantor's estate while continuing to allow the grantor's spouse to benefit from those assets. With rapidly appreciating assets, this can result in the transfer of significant wealth without incurring any gift tax.ДЄ SLAT is used to provide support to the grantor's spouse while moving assets by gift out of the grantor's estate. While the annuity payments will be included in the grantor's estate, the appreciation of the assets during the term of the GRAT will pass to the continuing trust tax-free. The annuity payments are structured so that the value of the remainder is zero or close to zero, which results in the initial transfer to the trust being nontaxable. Under a typical GRAT, the grantor will receive an annuity for a term of years and the remainder will be distributed to a continuing trust, usually for the benefit of the grantor's descendants. GRATs are used to transfer appreciated assets without incurring gift and estate taxes. Under the current rules, there are several commonly used estate planning structures that rely upon the grantor trust rules, including grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs), intentionally defective grantor trusts (IDGTs) and irrevocable life insurance trusts (ILITs). Additionally, the grantor trust rules allow the grantor to retain some control over an irrevocable trust, such as the carefully limited ability to change the trust's assets and beneficiaries. Grantor trusts, the income of which is taxed to the grantor instead of the trust, have been an important estate planning tool since income tax brackets for trusts became more compressed than those for individuals. These potential changes could make year-end planning especially important this year. Among the many changes in this proposed tax plan are three that will significantly impact estate planning opportunities: 1) changes to the grantor trust rules, 2) elimination of valuation discounts for interests in passive entities, and 3) reduction in the gift and estate tax exemption. The House Committee on Ways and Means has proposed a tax plan intended to fund President Joe Biden's 'Build Back Better' $3.5 trillion infrastructure program.

House ways and means committee