Grantor trusts can be an effective way to optimize lifetime exemptions, says Atlantic Trust

By reducing taxable estate assets, families can protect and pass on more to future generations

ATLANTA, Feb. 26, 2015 /PRNewswire/ - Transferring assets to a grantor trust can be a powerful way to maximize an individual's lifetime gift exemption, according to Atlantic Trust, the U.S. private wealth management division of CIBC (NYSE: CM) (TSX: CM).

These types of trusts, long relied on by estate planners, have been receiving increased attention lately thanks in part to the income and estate tax benefits they offer, but also because of how they can help grantors use gift exemptions more efficiently.

"As the prospect of estate tax repeal grows less likely, individuals and families want to optimize the exemptions that they already have," explains Linda S. Beerman, chief fiduciary officer for Atlantic Trust. Since grantor trusts offer both income- and estate-tax benefits, they can be a powerful tool for removing assets from a taxable estate.

Generally in these types of trusts, the person creating the trust (the grantor) irrevocably transfers certain assets to a trustee to hold and oversee so that the transfer is a completed gift for gift tax purposes. The trust, however, is designed with certain specific rights and powers that make the grantor - not the trust or any of its beneficiaries- responsible for paying income tax on any trust income and gains. Regardless of whether or not those powers are actually exercised—and often they are not—putting them into the instrument makes it a grantor trust.

While any tax paid by the grantor may reduce the value of the overall estate, assets inside the trust can still appreciate without being depleted by income taxes. "That prospect can translate into significant sums," says Judith A. Saxe, managing director and senior wealth strategist for Atlantic Trust.

This strategy can be effective because it may help individuals maximize their lifetime exemptions—the total value of assets that may be given away before triggering a gift tax. Currently, the lifetime exemption amount for individuals is $5.43 million ($10.86 million for married couples) for 2015. Generally, once the exemption limit has been reached, a gift tax of 40% applies.

Although grantor trusts can be powerful estate planning tools, they also can pose an additional risk for grantors. If the trust assets greatly appreciate, grantors must be prepared to pay the tax liability. For example, if the trust owns a large position in low-basis stock that is about to explode in value—because the company is being sold—the tax liability could be higher than expected. Drafting a grantor trust to allow for the ability to "turn off" grantor trust status if needed provides additional flexibility with this type of planning.

Atlantic Trust offers a number of resources concerning estate planning strategies that involve grantor trusts, as well as other types of trusts. To learn more, visit the Online Resource Center at www.atlantictrust.com.

The tax information contained herein is general and for informational purposes only. Atlantic Trust does not provide legal or tax advice, and the information contained herein should only be used in consultation with your legal, accounting and tax advisers.

About Atlantic Trust

Atlantic Trust is one of the nation's leading private wealth management firms, offering integrated wealth management for high net worth individuals, families, foundations and endowments. The firm considers clients' financial, trust, estate planning and philanthropic needs in developing customized asset allocation and investment management strategies. Experienced professionals deliver a broad range of solutions, including proprietary investment offerings and a robust open architecture platform of traditional and alternative managers. Atlantic Trust operates in 12 full-service locations throughout the U.S. with $25.9 billion in assets under management (as of October 31, 2014). For more information, visit www.atlantictrust.com.

About CIBC

CIBC is a leading Canadian-based global financial institution. Through our Retail and Business Banking, Wealth Management and Wholesale Banking businesses, CIBC provides a full range of financial products to individual, small business, commercial, corporate and institutional clients in Canada and around the world. CIBC owns a 41 percent equity interest in American Century Investments®, a major U.S. asset management company, serving financial intermediaries, institutions and individuals, and acquired Atlantic Trust, a premier U.S. private wealth management firm, in January 2014. You can find other news releases and information about CIBC in our Media Centre on our corporate website at www.cibc.com.

SOURCE Atlantic Trust Private Wealth Management