Grantor Retained Annuity Trusts  (GRATs). A grantor annuity trusts is a form of irrevocable trusts which have been developed for the purpose of reducing gift, estate and generation-skipping transfer taxes. Under this trust the grantor transfers property to an irrevocable trust, retaining for a fixed term of years (10 year minimum?) the right to receive a fixed annuity payment. The grantor receives back an annuity payment each year during the term of the GRAT, the amount of which is based on the interest “hurdle rate” set by the IRS for the month in which the GRAT was created. The annuity amount typically is structured so that the transfer produces little or no taxable gift.

Upon the termination of the grantor’s annuity interest, the trust property is distributed, either outright or in trust, to specified beneficiaries. If the grantor survives the annuity term, all of the trust property, including any appreciation in the value of the trust assets after the creation of the trust, will be excluded from the grantor’s estate for federal estate tax purposes. If the grantor dies during the term of the annuity interest, the entire trust property will be included in the grantor’s estate for federal estate tax purposes.

A GRAT is ideal for someone who owns company stock that they expect to rapidly appreciate in the near future and would like the appreciation of the stock to occur outside their taxable estate.

For more information, please contact Brian Chew at 949-347-5256 or use the contact us form.