Overview
A GRAT transfers appreciating assets to an irrevocable trust while the grantor retains annuity payments for a set term. If assets grow faster than the IRS assumed rate (Section 7520 rate), the excess appreciation passes to beneficiaries with minimal or zero gift tax. Used extensively by wealthy families and tech founders.
Best For
- Owners of rapidly appreciating assets (stocks, crypto)
- Business owners before liquidity events
- Those wanting to transfer wealth with minimal gift tax
- Individuals with assets expected to outperform IRS rates
Key Features
- ✓ Transfer appreciating assets with near-zero gift tax
- ✓ Grantor receives annuity payments during term
- ✓ Excess appreciation passes tax-free to beneficiaries
- ✓ "Zeroed-out" GRAT minimizes gift tax exposure
- ✓ Can be "rolled" into successive GRATs
- ✓ Works with stocks, business interests, real estate
📊 Tax Benefits
- ✓ Gift tax value can be reduced to near zero
- ✓ All appreciation above 7520 rate passes tax-free
- ✓ Grantor trust status — grantor pays income taxes
- ✓ No estate tax on successfully completed GRATs
- ✓ Can be combined with other estate planning strategies
Considerations
- Grantor must survive the GRAT term
- If grantor dies during term, assets return to estate
- Best when assets are expected to appreciate significantly
- Short-term GRATs (2-3 years) reduce mortality risk
- IRS Section 7520 rate affects effectiveness
- Requires careful valuation of transferred assets