Grantor Retained Annuity Trust - GRAT

What is a 'Grantor Retained Annuity Trust - GRAT'

A Grantor Retained Annuity Trust (GRAT) is an estate planning technique that minimizes the tax liability existing when intergenerational transfers of estate assets occur. Under these plans, an irrevocable trust is created for a certain term or period of time. The individual establishing the trust pays a tax when the trust is established. Assets are placed under the trust and then an annuity is paid out every year. When the trust expires the beneficiary receives the assets tax free.

BREAKING DOWN 'Grantor Retained Annuity Trust - GRAT'

Under these plans, the annuity payments come from interest earned on the assets underlying the trust or as a percentage of the total value of the assets. If the individual who establishes the trust dies before the trust expires the assets become part of the taxable estate of the individual, and the beneficiary receives nothing.

RELATED TERMS
  1. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  2. Grantor Trust Rules

    Guidelines that state a trust is considered to be a grantor trust ...
  3. Irrevocable Income-Only Trust - ...

    A type of living trust often used for Medicaid planning. It protects ...
  4. Credit Shelter Trust - CST

    A type of trust that allows a married investor to avoid estate ...
  5. Beneficiary Of Trust

    A beneficiary of trust is a person for whom a trust was created, ...
  6. Intentionally Defective Grantor ...

    An estate planning tool used to freeze certain assets of an individual ...
Related Articles
  1. Products and Investments

    Irrevocable Trusts: New Trends You Need to Know

    Several improvements and additional provisions have been added to irrevocable trusts in recent years making them considerably more versatile than before.
  2. Professionals

    Grantor Retained Annuity Trusts

    Grantor Retained Annuity Trusts
  3. Retirement

    Estate Planning: Introduction To Trusts

    by Cathy Pareto, CFP®, AIF® (Contact Author | Biography) A trust is an agreement that describes how assets will be managed and held for the benefit of another person. There are many ...
  4. Retirement

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  5. Retirement

    Should You Put Your Faith In A Trust?

    Many institutions want a piece of your portfolio, but trusts can provide a one-stop shop.
  6. Professionals

    Corporate and Trust Income Tax

    FINRA/NASAA Series 66: Section 3 Corporate and Trust Income Tax. This section discusses corporate income taxes and tax on revocable and irrevocable trusts.
  7. Your Clients

    Advisors: Tips for When to Employ Living Trusts

    Revocable living trusts accomplish estate planning objectives that aren't possible with a will. Here are some of the cases that show when to use a trust.
  8. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  9. Professionals

    Types and Basic Provisions

    Types and Basic Provisions
  10. Professionals

    Corporate and Trust Income Tax

    NASAA Series 65: Section 13 Corporate and Trust Income Tax. In this section corporate income taxes and inocome taxes on revocable and irrevocable trusts.
RELATED FAQS
  1. What is the difference between a revocable trust and an irrevocable trust?

    Find out more about irrevocable trusts, revocable trusts and the main differences between them. Read Answer >>
  2. What is the difference between revocable and irrevocable intervivos trusts?

    Learn what an inter-vivos trust is, the difference between an irrevocable and a revocable inter-vivos trust, and why it is ... Read Answer >>
  3. What is the difference between a revocable trust and a living trust?

    Learn how a revocable trust and living trust are two terms used to describe the same thing and what the key provisions are ... Read Answer >>
  4. How does the trust maker transfer funds into a revocable trust?

    Learn how revocable living trusts are established, how the trust maker transfers funds into the trust, and the advantages ... Read Answer >>
  5. What are the keys to setting up a trust fund?

    Setting up a trust to secure your assets for a beneficiary allows you to set the terms under which the beneficiaries are ... Read Answer >>
  6. What happens when a will and a revocable trust conflict?

    Learn why a revocable trust supersedes a will, but only for the assets held in the trust, when there is a conflict between ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center