Not a pretty title, eh? What in the world are GRATs, GRUTs and GRITs? They're estate planning devices, certain sorts of trusts designed to save taxes.

GRAT is an acronym for Grantor Retained Annuity Trust. An owner of a family business ("George") could put some of his stock into a trust for his children. The GRAT might have a ten-year term. During this term, George would receive income from the GRAT, say at a six percent annual return. After the term of the trust, the stock held by the GRAT would be distributed to George's children. If George gave $500,000 worth of stock to such a ten-year GRAT, it would only be treated as a gift of about $300,000. If the stock grew in value at a rate of nine percent per year, George, now sixty years old, would get income of $30,000 per year for ten years, and the children would get shares worth $730,000 at the end of the trust term, again with George having made a taxable gift of only $300,000.

A GRUT (Grantor Retained Unitrust) is quite similar to a GRAT, except that George's income from the trust changes each year. It is six percent of the value of the shares, redetermined annually.

The most common form of GRIT has a personal residence as the trust property. This device was described in our Fall 1991 Estate Tax Newsletter. The principle is the same as that employed in a GRAT or GRUT. George puts his home into a trust for ten years. During the term of the trust, he gets to use it rent-free. At the end of the period, ownership passes to his children (if the parties agree, George can stay as a renter). If the residence is worth $300,000 at the beginning of the term, the stated, taxable gift is only about $130,000. Even if the residence is worth, say, $600,000 at the end of the ten years, it all goes out of George's estate without additional tax, again with George having made a taxable gift of only about $130,000.

If you would like to explore these or other estate and tax planning ideas, please call the lawyer with whom you work, or Alan Macpherson or , Al Falk or Eileen Peterson of our Tacoma office.

Best wishes for a healthy, prosperous, and enjoyable 1996. It should be an exciting year - we have the Olympics, a Presidential election, and maybe even a Mariners World Series yet to come!