GRATs, IDGTs, and family LPs — real estate funding appraisals for Utah estate planners

A Park City attorney calls about a client who wants to fund a five-year GRAT with a Deer Valley spec home under construction. A Salt Lake CPA needs a defensible value for an IDGT installment-sale promissory note on a four-property rental portfolio. A Davis County family is restructuring a family LP that holds three primary-residence-class homes and a Heber cabin, with annual lifetime-exemption gifting of fractional limited-partner interests to the next generation.

The deadline pressure that drove a lot of this work in 2025 is gone. The scheduled drop in the federal exemption never happened — Public Law 119-21 set the basic exclusion at $15 million per person for 2026, indexed for inflation after that. What's left is planning on its merits: families with estates near or above that line, holding real estate expected to appreciate. The appraisal piece is still the part most advisors describe to the client as "we'll just need a number" without knowing the half-dozen ways the IRS will examine it.

Below is what each of the three primary structures requires from a qualified appraiser — GRATs, IDGTs, and family LPs — plus the Utah-specific wrinkle and where the discount analysis actually comes from. Nothing here is legal or tax advice. That belongs to the planner and the CPA. This is the appraiser's piece of the file.

Quick GRAT primer — and why real estate is sometimes the wrong asset

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust into which a grantor transfers an appreciating asset, retains an annuity payment back from the trust for a fixed term of years (typically two to ten), and passes whatever remains in the trust at term-end to the beneficiaries free of additional gift tax. The classic case is a "zeroed-out GRAT": the actuarial value of the retained annuity equals the value of the contributed asset, so the gift-tax cost of funding the GRAT is effectively zero. Anything the asset earns above the IRS Section 7520 hurdle rate over the term passes to beneficiaries tax-free.

Public stock works beautifully in a GRAT. A volatile stock can spike, the annuity gets paid in shares, and the residual value can be enormous. Real estate is more complicated. The annual annuity payment — usually a five-to-twenty percent payback of the original contribution — needs to come from somewhere, and an illiquid cabin doesn't generate cash. The asset doesn't trade, so its mid-term value is appraisal-dependent rather than market-quoted. And the qualified-appraisal piece carries more weight because there's no ticker to anchor the value to.

Real estate works in a GRAT when one of three conditions holds: the property is income-producing (a one-to-four-unit rental) so the annuity can be paid from rents; the grantor can fund the annuity from outside the trust without a deemed gift; or the asset has clear, near-term appreciation expected (a property under contract, a home nearing completion) so the GRAT can be structured as a short-term play.

The appraisal side: a qualified IRC § 2702-compliant valuation at funding, with the effective date matching the funding date. Standard USPAP report. No discounts at funding (the GRAT receives the whole-property value, not a fractional interest). Annual valuations may be needed if annuity payments are in kind. A second appraisal at term-end if the residual transfer requires substantiation.

Real estate in a GRAT is workable. It is not the default.

The IRC § 2702 funding-valuation problem

Section 2702 is the rule that makes the GRAT possible — and also the rule that controls how carefully the funding appraisal has to be written.

The statute, in shorthand: when a grantor transfers property to a trust in which the grantor retains an interest, the retained interest is valued at zero for gift-tax purposes unless the retained interest is a "qualified interest" under § 2702(b). A qualified interest must be either a fixed-dollar annuity or a fixed-percentage unitrust paid at least annually. Get the structure right and the retained interest is valued at its actuarial present value, computed using the IRS Section 7520 rate in effect for the month of funding. Get it wrong and the retained interest is zero — meaning the entire contributed value is treated as a gift.

The math: the funding-date appraised value times the actuarial factor for the annuity term and rate equals the value of the retained annuity. Whole-property value minus retained-annuity value equals the gift portion. A zeroed-out GRAT structures the annuity to equal the contribution, leaving the gift at zero.

The appraisal side of this: any error in the funding valuation cascades into the gift-tax computation. Overvalue the funding asset and the gift portion is larger than it needs to be. Undervalue and the IRS has grounds to challenge — and if the challenge succeeds, the grantor owes gift tax on the difference plus penalties. The appraisal has to be conservative-but-defensible, with comparable sales clearly anchored, the highest-and-best-use analysis explicit, and the certifications signed by an appraiser who meets the qualified-appraiser requirements of Treas. Reg. § 301.6501(c)-1(f)(3) — someone who appraises regularly, is qualified by training and experience, and isn't the donor, the donee, or a relative or employee of either.

The funding number is the entire game. Every subsequent calculation flows from it.

Family LPs — the real estate value and the discount are two different jobs

Family limited partnerships (FLPs) holding real estate are where valuation discounts come up most. The structure: a parent sets up an FLP, contributes real estate (a cabin, a rental, sometimes several properties), keeps a small general-partner interest with management control, and over a period of years gives limited-partner interests to children and grandchildren using the annual exclusion and lifetime exclusion.

Valuing one of those limited-partner interests takes two steps, usually done by two different professionals:

• The underlying real estate. The market value of each property the partnership holds, as of the gift date. For one-to-four-unit residential property, that's a residential appraisal — the part Miner Appraisals prepares.
• The partnership interest. What a limited-partner interest is worth given that it carries no control and has no ready market. That analysis works from the partnership agreement — transfer restrictions, buyout terms, the general partner's powers — and from market evidence on comparable interests. It's business-valuation work, usually done by a credentialed business valuator, not a real estate appraiser.

There's no standard discount. The size depends on the agreement, the assets, and the evidence, and the IRS and the Tax Court have examined FLP discounts for decades — Estate of Strangi is the best-known example of a partnership whose discount didn't hold because of how the family actually used it. A percentage lifted from another family's case isn't support.

What the real estate appraisal contributes is the base. If the underlying values are weak, everything the valuator builds on top of them is weak too. Two jobs, two reports — each signed by someone who does that work every week.

IDGT installment sales — coordinating the appraisal with the promissory note

An Intentionally Defective Grantor Trust (IDGT) is an irrevocable trust drafted so it is treated as a grantor trust for income-tax purposes (the grantor pays the trust's income tax, effectively making additional tax-free gifts) but not for estate-tax purposes (assets pass to beneficiaries outside the grantor's taxable estate). The classic real-estate move is an installment sale to the IDGT: the grantor sells appreciating real estate to the trust in exchange for a long-term promissory note bearing the IRS Applicable Federal Rate (AFR).

The appraisal piece is critical because the IRS examines two values simultaneously: the value of the real estate sold to the trust, and the value of the promissory note received in return. If the real estate is overvalued or the note is undervalued (insufficient AFR, balloon structure with no real expectation of repayment), the IRS can argue the difference constitutes a taxable gift.

The qualified appraisal at the date of sale anchors both sides. Sale price equals appraised value. Promissory-note face value equals appraised value. Note interest rate equals or exceeds the AFR for the month of sale. The grantor pays the note's interest in cash from outside the trust; the trust's appreciating real estate compounds inside without the grantor's estate growing.

What the appraiser delivers: a qualified appraisal of the real estate as of the sale date, USPAP-compliant, with comparable sales and the standard valuation approaches. For multi-property portfolios, a portfolio approach with property-by-property values rolled to a portfolio total. Annual valuations may be needed if the planner wants to demonstrate the trust's growth above the AFR each year.

The IDGT installment sale done well can move a great deal of value out of a Utah taxable estate. Done badly, it invites a deficiency notice years after the planner thought the work was finished.

Utah has no state estate tax — but the federal exposure still drives the appraisal work

Utah eliminated its state estate tax after the federal credit changes following the Economic Growth and Tax Relief Reconciliation Act of 2001. Today there is no separate Utah inheritance or estate tax, and Utah does not have a state-level gift tax. Compared to states like Washington, Oregon, or Massachusetts with active state estate taxes at much lower thresholds, Utah HNW families have one less layer of planning to manage.

What this means in practice: the planning math is driven entirely by federal exposure. The basic exclusion is $15 million per individual for 2026, and portability lets a surviving spouse use a deceased spouse's unused exclusion — up to $30 million for a married couple. Public Law 119-21 replaced the scheduled drop to roughly $7 million that had driven a wave of 2025 planning; the figure is now indexed for inflation with no scheduled sunset.

So the families for whom these structures make sense are fewer than the 2025 headlines suggested — estates near or above the exclusion, holding property expected to appreciate faster than the § 7520 rate. In Utah that real estate concentrates in Summit County and Wasatch County, with a secondary cluster on the Salt Lake east bench. For everyone else, the live question is the income-tax one: a lifetime gift carries the donor's basis over, while property held until death gets a stepped-up basis — see the step-up basis post.

For broader gift-tax appraisal work — the Form 709 lifetime-gift filings that GRATs, IDGTs, and FLP gifting programs all generate — see Form 709 gift tax appraisals — what Utah year-end gifts actually need. For the year-end Q4 calendar that drives most of this work, see when to commission a year-end estate appraisal. The service home is the gift tax & estate-planning appraisals page.

The deadline is gone. The need for a defensible number isn't.

Frequently asked

Related reading

For the underlying gift-tax filing that GRAT, IDGT, and FLP gifting programs all generate, see Form 709 gift tax appraisals — what Utah year-end gifts actually need. For Form 8283 charitable real-estate donations (some Utah HNW families pair GRATs with charitable remainder trusts), see Form 8283 real estate appraisals — what Utah donors actually need. For the timing-focused year-end calendar, see when to commission a year-end real estate appraisal. The service home for all of this work is the gift tax & charitable-gift appraisals service page. Most Utah HNW estate-planning real estate concentrates in Summit and Wasatch counties.

The structure is the lawyer's. The number is the appraiser's. The discount is the business valuator's.