The vast majority of my estate planning clients are part of the more than 99% of America who has never had the need to familiarize themselves with the estate planning concept called GRAT which stands for Grantor Retained Annuity Trust. Rather, they come to my office seeking a living trust, a will, a power of attorney, and an advance health care directive.

GRATs have been extremely important to one prominent family – the Sam Waltons from Bentenville, Arkansas. You may know the name as the founder of Walmart. Mr. Walton not only founds the company, but unlike a lot of great businessman, he was keenly aware of estate planning almost from the beginning. More about him in a moment.

A GRAT allows an individual to transfer assets to a trust and receive an annuity payout for a term of years. Typically, it is a short period of time (2 to 3 years). The annuity payout is based on a government set interest rate. Today that rate is 3.2%. All of the appreciation of the asset in an amount greater than the interest rate is outside of the estate and is therefore not subject to estate taxes when the individual dies. Moreover, there is not a gift tax.

It is a form of estate planning that has almost no down side. In the event that the asset appreciates at a rate less than the rate of interest, then the individual has only lost the legal fees that it cost to establish the GRAT. Also, the individual has to live at least the length of the term of the GRAT. In the event that he/she dies before the term of the GRAT, then the assets get pulled back into his/her estate.

Now, it looks like Washington is going to change all of that. The House in the last week passed a bill that, among other things, requires the term of GRATs to be at least 10 years. This will make their benefit a lot less for older people. It is assumed that the Senate will do the same and that ultimately President Obama will sign the legislation.

Back to Sam Walton. He used GRATs to such a degree, that there is such a thing as a “Walton GRAT” that estate planners use. It is one of many reasons that he was able to pass down such a large percentage of his fortune to his children. Many other business barons have not been as savvy in their estate planning and their heirs got a smaller percentage of the estate whether it has held in trust or not and whether it had to go through probate or not.

As an estate planning attorney who works daily with clients’ and their living trusts, I frequently see clients with a fair amount of their net worth in IRAs and/or qualified plans. It is with that in mind that I discuss the following.

What the government giveth, it taketh away. In late 2008, then President Bush signed into law the Worker, Retiree, and Employment Recovery Act (WRERA) which contained a suspension of the law that requires a minimum distribution for both IRAs and defined contribution plans for 2009. It was a one year only suspension and the primary purpose of it was to not make individuals take a distribution because many of their accounts were greatly reduced due to great decline in the stock market in 2008.

Ed Slott, one of the preeminent IRA experts in the country, prepares a newsletter each month. In his April edition, he points out that the required beginning date for most individuals is April 1 of the year following the calendar year in which the individual became 70½. However, most of the time the taxpayer does not need to take a required minimum distribution until December 31 of that year.

Remember, RMDs will be based on the year-end balance of 2009 even though there was no RMD for 2009. This is true even for people who turned 70½ last year!

So says a panel of the United States Court of Appeals for the Ninth Circuit.  Anna Nicole Smith died in 2007.  Until the end of her life, she was seeking to be an heir of the husband that she married in 1994 when she was 26 and he was 89. 

While J. Howard Marshall spent lavishly on Anna Nicole during their 14 months of marriage, his estate planning documents left his estate to his son, Pierce.  Almost from the moment he died in 1995, fourteen months after his wedding to Anna Nicole, the fighting began.  The widow alleged that he promised her $300 million or more.  Pierce countered that the will and trust did not provide for that and 15 years later it looks like the finish line is in sight.

The panel from the 9^th Circuit ruled on Friday, March 19 that Ms. Smith (and now her estate) was not entitled to any money.  Her estate’s attorney indicated that it is not the end of the line.  The estate may appeal to the full Ninth Circuit and ultimately to the United States Supreme Court.  The Supreme Court probably will not take the case again.

It is my opinion that Anna Nicole Smith’s estate is fighting on fumes with the end being near and I think that ultimately the probate court in Houston’s 2001 ruling will stand and Anna Nicole’s Smith’s daughter as her sole heir will not receive anything from the estate of J. Howard Marshall.