Grantor Retained Annuity Trust (GRAT)

Grantor Retained Annuity Trust (GRAT)

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust designed to minimize the gift and estate tax implications of transferring assets to beneficiaries. The grantor, who establishes the trust, retains the right to receive annuity payments for a specified term. At the end of this term, any remaining assets in the trust are transferred to the beneficiaries, typically family members.

In a GRAT, the value of the gift to the beneficiaries is determined by the current value of the assets minus the present value of the annuity payments the grantor will receive. This structure allows the grantor to benefit from the income generated by the assets while potentially passing on appreciation of those assets to beneficiaries with reduced tax implications, as the value of the gift for tax purposes may be lower than the actual value of the assets at the time of transfer.