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.

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RELATED FAQS
  1. How does the trust maker transfer funds into a revocable trust?

    Once a revocable trust is created, a trust maker transfers funds or property into the trust by including them in a list with ... Read Full Answer >>
  2. What is the difference between a revocable trust and a living trust?

    A revocable trust and living trust are separate terms that describe the same thing: a trust in which the terms can be changed ... Read Full Answer >>
  3. For what types of financial instruments would I want to calculate the present value ...

    Because the present value of an annuity formula relies on a consistent interest rate and identical payments for a set period ... Read Full Answer >>
  4. What exact information is included in the interest rate when calculating the present ...

    When calculating the present value of an annuity, the interest rate percentage is the rate at which future payments are discounted ... Read Full Answer >>
  5. How do you calculate a present value of annuity using Excel?

    Calculating the present value of an annuity using Microsoft Excel is fairly straightforward if you know the interest rate, ... Read Full Answer >>
  6. What is the difference between the present value of an annuity and the future value ...

    The present value of an annuity represents the sum that must be invested now to guarantee a desired payment amount in the ... Read Full Answer >>

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