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Related to GRAT: gratis
GRATGrantor Retained Annuity Trust
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A GRAT is a vehicle an individual, or grantor, can use to transfer property.
While the grantor must survive the term of the GRAT to reap any estate tax benefits, the biggest disadvantage of a GRAT is that any generation-skipping transfer (GST) tax exemption may not be allocated to the GRAT until the end of the GRAT's term (see Sec.
GRATs are typically funded with a gift of assets that are expected to appreciate in value, which then freezes the value of the assets for estate and gift tax purposes.
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.
When the IRC 7520 rate drops, as it has in recent months, grantors can reimburse themselves less during the GRAT term.
Example 1: Sheila Simmons transfers stock worth $500,000 to a GRAT.
10-Year GRAT and 2-Year Rolling GRATs Median Wealth Advantage of a Taxable Gift, Year 10 Per $10 Million Starting Assets (Dollars in Millions) 55% Estate Tax Rate 45% Estate Tax Rate 10-Year GRAT $4.
For federal tax purposes the GRAT is considered a grantor trust, meaning that the grantor pays taxes on all trust income.
By increasing annuity payments each year of the GRAT term, payments can be minimized in early years, leaving more principal in the GRAT for a longer period of time and allowing the principal to generate additional appreciation.
In a GRAT, the grantor retains a right to payment of a fixed amount for a fixed period of years.