In a rolling short-term
GRAT strategy, you create a short-term
GRAT (say, one with a two-year term), then fund the
GRAT with your stock, rolling each year's annuity payment into a new
GRAT.
If the grantor structures the
GRAT trust for 5 years, the grantor must live 5 years and one day; the grantor must outlive the trust period.
There are ways to mitigate the risk of the grantor's failure to survive the specified
GRAT term.
A
GRAT is also a bet that the assets the client places into the trust will appreciate in value at a rate that is greater than an IRS-prescribed interest rate.
GRATs are very short-term trusts (usually two to five years in duration) that thrive in low-interest environments.
If the senior member survives the annuity term, none of the remaining
GRAT assets will be includible in his or her gross estate for estate tax purposes.
For asset classes other than S Corps, if the remainderman is not a "member of the family" a GRIT is likely to be preferable to a
GRAT or GRUT for the following reasons:
Each
GRAT is a wealth transfer vehicle that receives its initial funding from the grantor, and transfers annuity payments to the grantor's personal portfolio.
Example (2): Example (2) in the regulations illustrates the calculations for determining the portion of a
GRAT that must be in included in a decedent's gross estate.
Even in an economy that made thousands of lawyers extinct, a
GRAT was still a viable estate-planning tool in a low interest rate environment, and remained a lush feeding ground for estate planners.
Commissioner, 115 TC 589 (2000), the Tax Court held that it is possible to structure a
GRAT on a "zeroed out" basis so the value of the grantor's retained annuity exactly equals the value of the property transferred to the trust.
Therefore, planners often create multiple
GRATs and vary the terms of the trusts to balance the risk of the grantor's untimely demise with the potential benefits that
GRAT planning provides.