GRAT

[Brian Haynes]

If the 100% shareholder of a closely held company transfers his stock to a 10-year GRAT, will the transfer to the GRAT and the ultimate transfer of the stock to the remiander beneficiaries trigger withdrawal liability by the company? Under Section 4218 of ERISA it is not a liquidation or merger, consolidation or division, but is it a mere change in identy or form? The 100% shareholder is transferring ownership of the stock into the name of the trust, while the shareholder is considered the grantor. I guess you could argue that a mere stock transfer is not a trigger. Any thoughts?

[Guest Sieve]

Seems to me that this is merely a change in stock ownership, and nothing more. There is no corporate reorganziation. So, there is no withdrawal liability as a result of the transaction. (Of course, the grantor remains the 100% owner for purposes of determining controlled groups.)

[Brian Haynes]

If the shareholder transfers his ownership to a GRAT, and since the GRAT is unincorporated, I think I may expose the former owner to personal liability for any future withdrawal liability (because although the owner is technically the trust, the former owner is the grantor and is considered as owning it or he may be considered the alter ego of the trust)? Any thoughts?

[K2retire]

For the non-lawyers among us -- what does GRAT stand for?

[Guest Sieve]

It won't help, but it stands for grantor retained annuity trust, where a trust is established, an annuity is paid to the individual establishing the trust for a period of years, & then the principal passes to the beneficiary of the trust.

Brian -- Why is there individual liability? The GRAT is simply the stockholder (in place of the individual), and the business continues--and, as usual, the stockholder is not liable for withdrawal liability incurred by the corporate employer. The grantor is still, actually, considered the owner when determining if there is a controlled group, but the business entity (not the individual or the GRAT) is responsible for the corporate withdrawal liability.

Now, if the grantor also has a schedule C business, then there is personal liability at withdrawal due to the controlled group relationship (corporation & self-employed business).

And, if a court pierces the corporate veil of the corproate business, then the individual is personally liable--whether or not the stock is owned individually or in a GRAT.

[K2retire]

It won't help, but it stands for grantor retained annuity trust, where a trust is established, an annuity is paid to the individual establishing the trust for a period of years, & then the principal passes to the beneficiary of the trust.

Scary thing is, it did help!

[Brian Haynes]

I agree with you. I was getting caught up with the Vaughn v. Sexton case (975 F.2d 498) where the court held that the shareholder of a contributing employer was held personally liable for withdrawal liability when he also was the trustee and beneficiary of a revocable family trust that leased property to the contributing employer since the court held that he was the alter ego of the trust. In my facts, it is not a control group issue and whether there is personal liability because one of the members of the group is not incorporated or an LLC, but rather is a stock transfer to the GRAT. I agree that the limited liability feature of owning the stock in a company should insulate both the trust and the former shareholder (who is now annuitant beneficiary of the GRAT). Of course, this assumes that there is no piercing of the corporate veil or any other self-employed business. Thanks for the comments which are always welcome.

[Guest Sieve]

Brian -- I haven't read the case you cite, but I suspect that the trust's trustee/beneficiary, as the owner of the real estate, feared leasing to the employer because that then would be a self-employed business that would share in the employer's withdrawal liability as a member of the employer's controlled group. The transfer to the revocable trust was still, then, considereded by the court to be a personal business of the grantor (piercing the trust's veil?!) Nice try, ehh??

K2 -- I forgot to mention that the beneficiary of a GRAT is a charity, so that the funding of the GRAT results in an immediate deduction (via some formula, I think), but yet the principal remains available to fund the annual annuity payments during the period of the trust's existence. You see those ads all the time in alumni magazines & the like. (This is out of my bailiwick, so, for what it's worth, I've told you all I know about GRATs . . .)

[K2retire]

Thanks Larry. My first job out of college was working in personal trusts. Although that particular acronym was not familiar, the concept is.