What is a grantor retained annuity trust (GRAT) and how does it work?
A grantor retained annuity trust (GRAT) is frequently used to transfer future appreciation in an asset (such as appreciating stock or a family partnership interest) to beneficiaries without making a taxable gift of the full current value of the asset itself. In somewhat overly simplified terms, a GRAT is an irrevocable trust created by you in which you retain the right to an annual payment (an annuity payment) for a specified number of years (the annuity period). When your annuity period ends, the trust property either continues in trust for the benefit of the remainder beneficiaries (such as your children), or the trust property may be distributed to these beneficiaries outright and free of trust. (For technical reasons, a GRAT is generally not a tax efficient vehicle for making gifts to grandchildren or more remote descendants.) The value of the gift to a GRAT is determined on the date that the GRAT is created and funded, not on the date that the trust property passes to the remainde
