Grantor Retained Annuity Trust - GRAT


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.

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.

  1. Estate Planning

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

    A tax levied on an heir's inherited portion of an estate if the ...
  3. Taxable Estate

    The total value of a deceased person's assets that are subject ...
  4. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  5. Grantor

    1. A seller of either call or put options who profits from the ...
  6. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
Related Articles
  1. Investing Basics

    The Seasons Of An Investor's Life

    From a tentative spring to a comfortable winter, learn how to weather the phases of your investing journey.
  2. Options & Futures

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  3. Options & Futures

    Your Will: Why You Need A Power Of Attorney And Beneficiaries

    What would happen if you were suddenly unable to manage your financial affairs? Preparation is the best protection.
  4. Professionals

    Charity or Retirement Saving: Which to Prioritize?

    Financial planners need to help clients with their financial goals but also support them in their philanthropic endeavours.
  5. Professionals

    How Legacy Planning Can Help Capture New Clients

    Don’t underestimate the importance of legacy planning with your clients—it could serve as method for you to create new business with any heirs.
  6. Professionals

    Tips for Retaining Your Client's Heirs

    It's a good idea to start working with your clients' children early on to forge relationships and hopefully continue to manage that wealth.
  7. Savings

    Passing Down Values and Money to the Next Generation

    Amassing wealth to pass down to your kids is great unless your values don't come with it. A priceless gift is teaching them to be financially responsible.
  8. Investing

    Estate Planning for Singles

    Now that singles dominate the population, it's important they understand the essentials of estate planning for indivdiuals.
  9. Retirement

    Why Are Annuities Important for Retirement?

    Understand how annuities work, and identify the benefits they provide for retirement, the most salient being a guaranteed income stream for life.
  10. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  1. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  2. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  3. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  4. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  5. What are the biggest disadvantages of annuities?

    Annuities can sound enticing when pitched by a salesperson who, not coincidentally, makes huge commissions selling them. ... Read Full Answer >>
  6. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!