Grantor Retained Annuity Trusts

Preserving Liquid Assets with a Grantor Retained Annuity Trust

A grantor retained annuity trust (GRAT) operates like a qualified personal residence trust (GRAT). At our Boston law firm, Taylor, Ganson & Perrin, LLP, our attorneys use this mechanism to reduce gift taxes, preserving them for beneficiaries. The grantor receives an annuity for the life of the trust. This annuity is subtracted from the value of the gift, as is any growth during the term of the trust, reducing the value of the gift. To learn more about establishing a GRAT, contact our estate planning lawyers.

Grantor retained annuity trusts can be an excellent mechanism for transferring assets while limiting tax liability.

If the grantor dies during the term of the trust, the residue reverts to his or her estate, and the beneficiaries receive nothing from the trust. They may be beneficiaries of a will or another trust, but the grantor retained annuity trust ceases, eliminating the tax benefits of this type of trust.

We avoid this by drawing up GRATs for short terms and evaluating at the end of each whether the situation warrants establishing successive, or cascading GRATs. The annuity payment from the previous GRAT can be used to fund the succeeding trust.

Grantor retained annuity trusts are usually funded by liquid assets, such as stocks, bonds, and bank accounts. The grantor can place a business in the trust, with the revenue generated by the business paying the annuity. IRS regulations govern the operation of this type of trust. It is best to consult with an estate-planning lawyer with significant knowledge of tax law as it relates to this type of trust. To learn more about grantor retained annuity trusts, contact our Boston law firm, Taylor, Ganson & Perrin, LLP.