But after that, such gifts become subject to a double layer of taxation the GST tax and either the estate tax or gift tax, which donors pay after their transfers exceed certain levels.
When the GRAT's term ends, the asset goes to the beneficiaries free of gift or estate tax on the appreciation, even though it has been transferred.
Which is cheaper for megamillion-dollar transfers, gift tax or estate tax?
If the value of the assets in the trust (say Wal-Mart ( WMT - news - people ) stock) grows at more than 3.2% a year, the children or other trust beneficiaries get that excess appreciation, free of estate and gift tax.
Taxpayers have been socking all sorts of assets -- including cash, stock and real estate -- into limited partnerships, and then claiming their stakes are worth 25%, 50% or even 90% less than the underlying assets for gift and estate tax purposes.
The ceiling could fall back down again in 2013, they say, or the government could decide to "claw back" gift- and estate-tax savings from this year and next.
In January, Rob Woodall (R-GA) introduced a bill in Congress to repeal income, employment and estate and gift taxes and instead impose a 23 percent sales tax on the use or consumption of all goods, properties and services.
The technique, known as a grantor retained annuity trust, or GRAT, allows rich families to pass on wealth while dramatically cutting their estate and gift tax bills.
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In addition, the estate and gift tax will remain "unified, " meaning an individual can use his or her entire exemption to make gifts while alive instead of waiting until death.
Fortunately, only Connecticut has a gift tax, but 21 states and the District of Columbia do impose inheritance or estate taxes.
Current tax policies, including the estate tax, cause wealthy people to put their money in tax havens and other tax-efficient savings vehicles or gift it to family members, trusts and charities.
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