GLOSSARY · TAX & ESTATE
Grantor retained annuity trust
An irrevocable trust that pays its creator a fixed annuity for a set number of years and passes whatever is left to heirs. The taxable gift is measured using the IRS section 7520 rate, so growth above that rate passes to heirs free of gift tax. The creator must survive the term, or the assets return to the estate.
Also called: GRAT, zeroed-out GRAT
FORMULA
Amount passing to heirs = trust value at the end of the term, after all annuity payments
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CHAPTER · WEALTH PROTECTION FUNDAMENTALS · FOUNDATIONSTrusts for Larger EstatesRELATED TERMS
SOURCES
- 26 U.S.C. § 2702, Special valuation rules in case of transfers of interests in trusts. United States Code.
- Section 7520 interest rates. Internal Revenue Service.