What is a GRAT?
Grantor retained annuity trusts (“GRATs”) will continue to be a useful estate planning technique until the estate tax is finally repealed. A GRAT enables the grantor to establish a trust that pays an annuity for a term of years, with the remaining trust assets going to one or more designated beneficiaries as an irrevocable gift. The amount of the gift (the remainder interest under the trust) is calculated at the time the trust is set up and consists of the amount the grantor contributes to the trust less the value of the annuity payments. Assuming that the trust assets are a successful investment, the amount remaining in the trust when the annuity payments are completed will be substantially greater than the remainder that was initially calculated. In other words, the appreciation in the trust assets will pass to the beneficiaries as part of the “remainder.” On the other hand, if the assets used to fund the trust generate less income than the income payout selected, some of the trust s
