Dictionary of Exit Planning Terms

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Grantor-Retained Annuity Trust (GRAT)

A grantor-retained annuity trust (GRAT) allows for a business owner to give away trust assets to designated beneficiaries, but keep an income stream from the gifted assets for a period of years. If the assets increase in value during the term of the trust, this appreciation passed to the designated beneficiaries of a dramatically reduced estate and gift tax cost.

A GRAT is in a revocable trust to which a business owner can contribute the stock of his company. the business owner then retains the right to receive a fixed annuity payments from the trust for a specified period of years (typically form 2 to 7 years), based on several factors, including the market value of the asset contributed to the trust, the length of the annuity, and and IRS approved interest rate.