Grantor Retained Annuity Trust (GRAT)
Transferring asset appreciation to heirs with little or no gift tax.
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Overview & Purpose
An irrevocable trust into which you transfer appreciating assets and receive a fixed annuity for a term of years; any appreciation above the IRS hurdle rate passes to remainder beneficiaries free of additional gift tax.
Who May Consider It
- You hold assets expected to outperform the current §7520 hurdle rate.
- You want to transfer appreciation to family at minimal gift-tax cost.
- Can transfer excess appreciation to remainder beneficiaries with little or no gift tax if assets outperform the hurdle rate.
- Allows you to retain an annuity stream during the term.
- If assets underperform the hurdle rate, little or no value transfers to beneficiaries.
- Does NOT provide asset protection or charitable benefits.
Important Trade-offs
- Best results often require a 'zeroed-out' GRAT and survival of the term; rolling/short-term GRATs are common.
Relevant Assets
Federal IRC § 2702 governs GRATs.
Questions to Discuss with an Attorney
- Should I use a rolling short-term GRAT, and what assets are appropriate?
Related Documents
Sources & References
This article was prepared using publicly available legal and government sources. Laws change, and readers should verify current rules in their jurisdiction.
Reviewed for educational accuracy
Last reviewed: September 30, 2026 · Next scheduled review: March 2027
This article is educational information and is not legal advice. Laws vary by jurisdiction. No attorney has reviewed this material unless a named, licensed attorney is credited above.
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