{"id":17147,"date":"2023-01-01T10:35:00","date_gmt":"2023-01-01T10:35:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=17147"},"modified":"2023-02-02T09:35:32","modified_gmt":"2023-02-02T09:35:32","slug":"grat","status":"publish","type":"post","link":"https:\/\/businessyield.com\/estate-planning\/grat\/","title":{"rendered":"GRAT: Grantor Annuity Trust Definition, Benefits & Examples","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"

There are individuals who find it frustrating in creating a financial plan. Some may have strived hard in accumulating the wealth but are also feel terrified to pass this wealth to their heirs because of the size of the estate and gift taxes. Favorably, there are several ruses you can make that can considerably reduce the amount you owe in taxes. Thus, one of these ruses is creating a grantor-retained annuity trust (GRAT). Thus this article is the bolt and nut to Grat trust, stocks, examples, benefits, and a brief biography of Amy grat.<\/p>\n

GRAT Trust<\/span><\/h2>\n

Grat is an acronym for grantor retained annuity trust. It is an irrevocable financial instrument for estate planning which minimizes taxes on large financial gifts to family members. The irrevocable trust is built for a certain term or span of time. This demands that the individual establishing the trust pays a tax upon trust establishment.<\/p>\n

I know you might be wondering why the word Annuity<\/a>. As an important and large component of GRATs, They are a financial mechanism where you contribute funds or assets such as shares of stock into an account, and later that account gives a disbursement in equal installments regularly. This may be either immediately or in the future.<\/p>\n

However, the aim of a GRAT is to change later appreciation on the assets in the GRAT to others at a minimal gift tax cost. Therefore, for a successful GRAT strategy, the assets contributed to the GRAT must generate a return at a higher rate than the IRS <\/a>assumed rate of return.<\/p>\n

The grantor holds the right to receive annuity payments for a set span of time after contributing assets to the GRAT. Typically. Thus in its easiest terms, in a grantor retained annuity trust (GRAT), the person setting up the trust is the grantor, therefore when you retain the annuities from the trust, those payments will definitely return back to you.<\/p>\n

4 key considerations in setting up a GRAT<\/span><\/h3>\n
    \n
  1. The length of the trust\u2019s term<\/li>\n
  2. The assets you want to place invest in it,<\/li>\n
  3. Consider the prevailing rate of return the IRS uses to calculate the trust\u2019s annuity payments<\/li>\n
  4. The beneficiary of the remainder <\/li>\n<\/ol>\n

    How GRAT Work<\/span><\/h2>\n

    Apart from paying out yearly annuities which work as part of your retirement income strategy, GRATs are tools for minimizing tax liability. It is a type of gifting trust that allows individuals to transfer a high yielding property or assets to a beneficiary with a minimal estate tax.<\/p>\n

    Grantors set up an irrevocable trust, with a term ranging from 2 years and above (depending on the grantor\u2019s wish). He contributes funds or assets into the account as a lump sum. Every year, the grantor is given out a fixed annuity. Thus, its usually a set percentage of the original amount in the trust. For instance, if you set up a GRAT with $200,000 and a fixed annuity of 12%, you would receive $12,000 yearly, despite how much is left in the trust after years.<\/p>\n

    Meanwhile, if the value of the trust sinks below the annuity payment amount, the annuity payment will be what is left of the trust assets. Thus, no further payment will be made from the trust. Lastly, at the end of the trust\u2019s term all remaining funds in the trust, are given to the beneficiaries.<\/p>\n

    How GRATs AreTaxed<\/span><\/h2>\n

    Basically, GRATs are taxed in two ways:<\/p>\n