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GRATGrantor Retained Annuity Trust
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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.
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.
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.