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. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended ...
  5. Credit Shelter Trust - CST

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

    A beneficiary of trust is a person for whom a trust was created, ...
Related Articles
  1. Financial Advisor

    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. Retirement

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  3. 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.
  4. Financial Advisor

    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.
  5. 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.
  6. Financial Advisor

    When to Trust a Revocable Trust

    Unsure of how your assets will be dispersed once you're gone? Here's how setting up a revocable trust while you're here can be a big benefit.
  7. Financial Advisor

    Passing an IRA to a Trust: The Good and Bad

    Creating a trust is a common estate planning tactic, but naming a beneficiary to an IRA to a trust may have unintended consequences.
  8. Managing Wealth

    How to Set up a Trust Fund If You're Not Rich

    You don't need to be wealthy to create your own trust fund. Here's why and how to go about it.
  9. Retirement

    How To Set Up A Trust Fund In The U.K.

    A guide to the whys and wherefores of setting up this most versatile of estate-planning instruments in the United Kingdom.
  10. Retirement

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex; here's what you'll need to discuss with your lawyer.
RELATED FAQS
  1. What percentage of withdrawals from a trust fund is taxed?

    I have inherited a trust fund. This is the first time I have considered pulling money from the account.  ... Read Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center