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Is a Grantor Retained Annuity Trust Right For You?

A Grantor Retained Annuity Trust (“GRAT”) is an irrevocable trust that is used to allow an individual to pass highly appreciating assets to his or her heirs with reduced gift and estate tax liabilities.  The “grantor,” or the person creating and funding the trust, retains an interest in the asset(s) in the trust that is paid back to the grantor over time based on a percentage of the assets. At the end of the trust term, the balance remaining in the trust is distributed to the trust’s “beneficiaries,” oftentimes the children of the grantor. This arrangement may be particularly beneficial to a grantor whose estate exceeds the estate tax exemption, or who owns an asset that is expected to substantially grow in value.

A common scenario in which a GRAT is used involves a grantor who owns highly appreciating securities, such as a pre-IPO stock, expected to grow in value significantly over a short period of time. By establishing a GRAT and funding it with the stock, the owner of the stock is able to “freeze” the value of the stock, so that the appreciation is passed to the beneficiaries’ gift and estate tax free.

Chauvel & Glatt can assist in the creation of Grantor Retained Annuity Trusts and similar irrevocable trusts. Contact our Estate Planners to schedule a consultation regarding the particulars of your circumstances.

This material in this article, provided by Chauvel & Glatt, is designed to provide informative and current information as of the date of the post. It should not be considered, nor is it intended to constitute legal advice.  For information on your particular circumstances, please contact Chauvel & Glatt at 650-573-9500. Chauvel & Glatt is located on the Peninsula in San Mateo, CA and serves the Bay Area counties and businesses throughout California. (photo credit: 123rf.com).


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