WHAT IS A GRAT AND HOW CAN IT HELP ME LEVERAGE MY GIFT?

The other gifting technique besides the qualified personal residence trust that’s hardwired into the income tax code, is the grantor retained annuity trust, G-R-A-T or GRAT for short. The grantor retained annuity trust is a gifting technique whereby a donor, we’ll call them the senior generation, places assets into a trust for the benefit of a lower generation, but retains for themselves an annuity to be paid back to them every year for the term of the GRAT.

Now GRATS can be as short as one year or two years. Sometimes referred to as a Walton GRATs where the annuity payment might be as high as 50%, or they could be longer term, in which case the annuity payment would be lower. But at the end of the term of the GRAT, the assets remaining in that trust now belong to the beneficiaries of the GRAT or the trust. The gift that’s actually given and valued for gift tax purposes is that expected remainder computed at the time the assets are gifted to the GRAT.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values.