Grantor Retained Annuity Trust - GRAT

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DEFINITION of 'Grantor Retained Annuity Trust - GRAT'

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.

INVESTOPEDIA EXPLAINS '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. Taxable Estate

    The total value of a deceased person's assets that are subject ...
  2. Estate Planning

    The collection of preparation tasks that serve to manage an individual's ...
  3. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  4. Grantor

    1. A seller of either call or put options who profits from the ...
  5. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  6. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
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