GRATs in Context

Posted on October 28th, 2013 at 11:35 AM

By Robert L. Moshman

The basic Grantor Retained Annuity Trust (GRAT) comes off like a great magic trick. The Grantor transfers assets but retains the right to receive income in the form of an annuity for a specific term of years. The beneficiary ultimately ends up with the assets, but, for transfer tax purposes, the value of the asset transferred is reduced by the value of the annuity that is retained.

For example, a Grantor transfers assets worth $1 million but retains an annuity worth $500,000. The net result is a taxable gift of $500,000, even though the beneficiary will ultimately receive an asset worth $1 million.

In addition, any appreciation on the asset is assumed to be at the conservative Federal rate, which in recent years has been
extremely low. As a result, if the GRAT assets exceed that rate, all of that extra appreciation is successfully transferred to the
trust beneficiary without triggering any additional gift or estate tax.

The main potential downside of the GRAT is that the Grantor must outlive the term of the trust or the trust assets will be included in the Grantor’s taxable estate. 

A cautious Grantor could shorten the term or guard against the potential of dying during the term by establishing an irrevocable life insurance trust, the proceeds of which would offset the additional estate taxes triggered by the Grantor dying during the term of the GRAT...

For more, read the full PDF here.


Return to Archive



We just wanted to say thanks for your work in helping us get back some of the money we lost. We are not by any means rich, but we have saved some money and we have done so through a tight-fisted approach to most everything we do. So losing a significant chunk of money hurt…especially at a time when everyone else was growing their accounts. We really appreciate the work you did.

Allan and Adele


June 30, 2022
FINRA Fines United Planners Over GPB Private Placement Sales

The Financial Industry Regulatory Authority (FINRA) has fined United Planners’ Financial Services of America over negligent sales of private placements issued by GPB Capital Holdings.

June 29, 2022
J.P. Morgan Advisors Ordered To Pay Former Partner $620,000

A Financial Industry Regulatory Authority (FINRA) arbitration panel has ordered a J.P. Morgan team to pay their former partner at least $620,000 over the dissolution of a partnership.

June 28, 2022
JP Morgan Manager Reveals Issues Regarding ESG Loan Pitches

The market for sustainability-linked loans is still severely prone to “greenwashing”, or investing more time and effort into marketing itself as environmentally friendly rather than actually minimizing its environmental impact, according to one of J.P. Morgan’s managers who often helps to sort through debt that is pitched to the company.