Grantor Retained Annuity Trust (GRAT) Attorney San Antonio TX
A Grantor Retained Annuity Trust (GRAT) is a type of trust in which the grantor retains an annuity for a term of years. A common GRAT is structured so that the value of the annuity stream during the GRAT terms equals the value of the property initially contributed to the trust. This is typically referred to as a “zeroed out” GRAT because it results in only a nominal gift for gift tax purposes. If the assets contributed to this type of GRAT increase in value beyond the value of the assets contributed to the GRAT plus interest based on the Internal Revenue Code § 7520 rate in effect at the time the trust is funded, then the remaining assets at the end of the annuity term pass to the grantor’s intended beneficiaries, and usually in trusts for their benefit, without incurring any additional gift tax. On the contrary, where the assets contributed to a GRAT decrease in value below the value of the assets contributed to the GRAT plus the interest based on the Internal Revenue Code § 7520 rate in effect at the time the trust is funded, then all the GRAT assets return to the grantor and the attempted wealth shift fails. GRATs have many advantages including because they are Grantor Trusts, the grantor can substitute assets out of the GRAT without triggering any income tax realization. The major disadvantage is that the grantor must survive the initial term of the trust for a GRAT to work.
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A Grantor Retained Annuity Trust (GRAT) can be an effective tool for transferring wealth to beneficiaries while minimizing gift and estate taxes. By structuring the trust to result in a nominal gift for tax purposes, the grantor can potentially pass on appreciation in assets without incurring additional tax liabilities. However, the success of a GRAT depends on the grantor’s survival during the trust term and the performance of the assets within the trust. If you are considering a GRAT as part of your estate plan or need assistance in setting one up, contact Carroll Law Group. Our skilled estate planning attorneys can help you navigate the complexities of GRATs and ensure that your estate planning goals are met.