Grantor Retained Annuity Trust (GRAT)
Last updated 17 July 2026
A grantor retained annuity trust, or GRAT, is an irrevocable trust used in United States wealth-transfer planning. The grantor contributes assets but retains the right to fixed annuity payments for a stated term. At the end of the term, any property remaining passes to the named beneficiaries under the trust's terms.
For federal gift tax valuation, the retained annuity is valued using an interest rate published by the Internal Revenue Service. If the assets grow faster than that assumed rate and the arrangement operates as intended, the excess growth can pass to beneficiaries with little or no additional gift tax. If performance is weaker, the annuity payments may return most or all value to the grantor.
Why it matters for family offices
A GRAT can be designed to transfer upside from assets with strong appreciation potential, such as pre-liquidity company shares. The result is not guaranteed. Valuation, cash flow, volatility, administration, and the timing of an exit all affect the outcome. The estate-planning benefit also depends on the grantor surviving the GRAT term. If the grantor dies during the term, some or all of the trust property may be included in the grantor's estate under United States rules.
The trust must make annuity payments according to its documents. That requires sufficient liquidity or in-kind transfers, current valuations, separate accounts, and timely records. A short or repeated GRAT strategy can add administrative work and should be designed and monitored by qualified US legal and tax advisers.
How it shows up in practice
Suppose a founder transfers shares valued at $5 million to a two-year GRAT before a potential company sale. The trust documents set the annuity using the applicable IRS assumptions, and the office records each scheduled payment. The company performs well and the shares are later sold, leaving value in the trust after the annuity obligations are satisfied.
Provided the grantor survives the term and the structure meets applicable requirements, that remaining value passes to the beneficiaries as designed. If the shares instead fall, the annuity can return most of the asset value to the grantor, but the family still bears setup, valuation, and administration costs. The office reports the actual outcome rather than treating projected appreciation as transferred wealth.
Related terms
Grantor (Settlor)
The individual or entity that creates a trust and transfers assets into it, also known as the settlor, trustmaker, or trustor depending on jurisdiction. The grantor defines the trust's terms: who benefits, who serves as trustee, and how assets may be used. In many UHNW structures, the founding generation acts as grantor of the trusts that will carry wealth forward.
Grantor Trust
A trust whose income is taxed to the grantor personally rather than to the trust or its beneficiaries, under US grantor trust rules. This treatment applies to all revocable trusts and to certain irrevocable trusts designed intentionally to achieve it. Paying the trust's income tax personally lets the grantor effectively make additional tax-free transfers, as trust assets grow undiminished.
Gift Tax
A US federal tax on transferring value to another person without receiving full value in return, designed to stop wealth passing tax-free during life. Gifts up to the annual exclusion, US$19,000 per recipient as of 2026, are tax-free, and larger gifts draw down the donor's lifetime exemption before any tax is owed. Systematic use of exclusions and exemptions is a cornerstone of US wealth transfer planning.
Beneficiary
A person or entity entitled to receive benefits, such as income, capital, or discretionary distributions, from a trust, estate, insurance policy, or foundation. In family wealth structures, beneficiaries are usually family members across multiple generations. Understanding who benefits from which entity is essential for accurate consolidated reporting of family wealth.
Estate Planning
The legal and financial arrangement of a person's assets to ensure they are transferred according to their wishes, with minimal tax friction and family conflict. Tools include wills, trusts, holding structures, and lifetime gifting strategies. For UHNW families, estate planning is a continuous discipline that must keep pace with changing laws, asset values, and family circumstances.
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