What is Grantor retained annuity trust (GRAT)?
In short
A grantor retained annuity trust (GRAT) is an irrevocable trust that pays the grantor a fixed annuity for a set term, after which the remaining assets pass to beneficiaries. The taxable gift is only the present value of the remainder.
Key takeaways
- It transfers wealth tax-efficiently when the assets grow faster than the federal interest rate used to value the gift.
- A 'zeroed-out' GRAT sets the annuity so the taxable gift is close to zero.
- If the grantor dies during the term, the assets are generally included in the grantor's estate.
Where it's tested
TCP: Estate & Gift Tax Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A grantor retained annuity trust (GRAT) transfers wealth efficiently when: