Grantor Trust

A grantor retained annuity trust (GRAT) is a financial instrument used in estate planning to minimize taxes on large financial gifts to family members.Assets are placed under the trust and then an annuity is paid out every year. When the trust expires the beneficiary receives the assets tax-free.

Trust Basics The trustee may be the grantor. The grantor designates the beneficiaries who are to benefit from the trust and receive its income and principal. Certain trusts allow the grantor to be both the trustee and the beneficiary.

A grantor retained annuity trust (GRAT) is a financial instrument used in estate planning to minimize taxes on large financial gifts to family members.Assets are placed under the trust and then an annuity is paid out every year. When the trust expires the beneficiary receives the assets tax-free.

At the end of the initial term retained by the Grantor, if the Grantor is still living, the remainder beneficiaries (or a trust to be administered for the benefit of the remainder beneficiaries) receive $100,0000 plus all capital growth (which is the amount over and above the net income that was paid to the Grantor).

Overview. When the grantor, who is also the trustee, dies, the successor trustee named in the Declaration of Trust takes over as trustee. The new trustee is responsible for distributing the trust property to the beneficiaries named in the trust document.

A grantor retained income trust (GRIT) is a specific type of trust that allows you to transfer assets while still benefiting from the income they generate. This is a little more advanced than a typical revocable living trust, but establishing a GRIT could yield some advantages.

The annuity amount is paid to the grantor during the term of the GRAT, and any property remaining in the trust at the end of the GRAT term passes to the beneficiaries with no further gift tax consequences.If the grantor lives out the term, the remainder passes to the beneficiaries without any additional transfer tax.

Interest in a closely or family-held business, including S corporation stock, may be placed in a GRAT. The Settlor may be the Trustee of the GRAT during the annuity term unless cer- tain voting stock is used to fund the GRAT.