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The Grantor Retained Annuity Trust (“GRAT”) is a type of trust specifically authorized by the regulations interpreting the Internal Revenue Code. This type of irrevocable trust permits you to make a lifetime gift of assets to an irrevocable trust in exchange for a fixed payment stream for a specified term of years.

At the end of the term of years, the balance of the trust property (the “remainder interest”) is transferred to the beneficiaries of your choice, typically children or grandchildren. The Grantor Retained Annuity Trust reduces estate taxes by removing assets from those that are counted in your estate for estate tax purposes.

The gift for federal gift tax purposes is based upon IRS published interest rates at the time of the transfer. This rate does not take into consideration any future appreciation in the value of the property and therefore you can reduce the value of the gift to as low as zero. The Grantor Retained Annuity Trust is particularly suited for assets that are expected to grow rapidly in value and property subject to discounts, such as interests in closely held businesses or limited liability companies.

During the term of years of the trust you must be paid a fixed amount annually or more frequently (for example, quarterly). The term of years and the amount of the payment are fixed at the time you create the trust (determined by you with the assistance of your legal and financial advisors).

During the term of years of the trust you can be the sole trustee or a cotrustee of the trust with complete control over all decisions of the trust and the assets in the trust.

Because the Grantor Retained Annuity Trust is a “grantor trust” under the income tax laws, during the initial term of years you are treated as the owner of the property for income tax purposes. Therefore, all items of income, gain, loss and deduction with respect to the Grantor Retained Annuity Trust are treated on your personal income tax return.

If you die during the term of years the property in Grantor Retained Annuity Trust will be counted in your estate for estate tax purposes, but you will be no worse off than had you not created the trust.



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