Financial & Estate Planning

An estate planning tool known as a grantor retained annuity trust (GRAT) lets you remove assets from your estate without giving up the income they generate. Using such a trust, you can remove an asset from your estate with reduced gift tax consequences.

Meanwhile, you can continue to enjoy annuity income from the asset transferred to the trust for a predetermined period of time. Your family members (the GRAT beneficiaries) ultimately will receive the gifted assets, which might be stocks, other investments, or real estate, at the end of the trust term.


Because they are annuities, GRATs pay you a fixed dollar amount each year. Be cautious, however: if you take more income from the trust than you can use during your lifetime, you will wind up putting that unspent money back into your taxable estate and possibly paying estate taxes on it.

Your gift tax is based on the present value of the remainder interest going to your heirs. Therefore, with GRAT you will be transferring the assets at a discounted rate, which means a lower gift tax bill for you.

GRATs are irrevocable so you can’t take the assets back later if you decide you need them. Thus, you should be sure you can afford to lose control of those assets before placing them in the trust.