A Grantor Retained Annuity Trust (GRAT) is:
- An irrevocable trust you fund with appreciating assets.
- You retain the right to receive annual annuity payments for a fixed term (usually 2–10 years).
- At the end of the term, any remaining value (i.e., appreciation above the IRS Section 7520 rate) passes to your beneficiaries free of gift and estate tax.
The strategy is often structured as a “zeroed‑out GRAT”, meaning the actuarial value of the remainder gift is close to zero—so you use little or none of your lifetime gift exemption.
When do you need a GRAT
- You have concentrated stock or business interests expected to appreciate.
- You want to freeze current value and shift only the upside.
- You’re comfortable with rolling GRATs (a new GRAT each year) to smooth volatility.
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