Grantor Retained Annuity Trust

A “grantor retained annuity trust,” commonly known as a GRAT is a trust utilizing a gift of a remainder interest in property. Like the QPRT (Qualified Personal Residence Trust), the Trustor selects a term during which he or she continues to benefit from the use and enjoyment of the property. However, unlike the QPRT where the Trustor’s use and enjoyment is the right to live in the property rent free, the GRAT pays an annuity amount to the Trustor for a specified term and at a specified interest rate. When the GRAT term expires, the Trustor no longer retains an interest in the property and it is either paid out to the beneficiaries or continued to be held in trust for their benefit.

When implementing a GRAT, there are a few important considerations. First, the Trustor must outlive the selected annuity term. If the Trustor dies prior to the expiration of the term, then the lesser of the value of the trust assets and the amount necessary to generate the specified annuity is included in the Trustor’s estate. Second, the GRAT must be able to make the annuity payments each period. This means that the Trust needs to either hold assets  that can generate cash flow to make the annuity payment or hold assets that are easily divisible, so that principal may be used to make the annuity payment as necessary. Lastly, as with all irrevocable trusts, the Trustor should only gift those assets that the Trustor does not rely on for the payment of everyday life.

If you are interested in learning more about the GRAT strategy or any other advanced planning strategies, please contact us to schedule a complimentary consultation at (714) 581-8808.

CONTACT INFORMATION

Lewis Business & Estate Planning, APC
949 South Coast Drive, Suite 555
Costa Mesa, CA  92626
Phone: (714) 581-8808
Fax: (714) 581-8809

 

ATTORNEYS
Christy L. Lewis, J.D., LL.M: clewis@lewisplanning.com
Jessica Ertel, J.D.: jertel@lewisplanning.com


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