Grantor Retained Annuity Trusts ("GRATs")
A Grantor Retained Annuity Trust (“GRAT”) is an irrevocable trust to which you transfer an asset and retain a stream of payments in the form of an annuity. The annuity is generally based upon the value of the asset you transfer, and is paid to you for a term of years. To the extent the asset transferred to the GRAT grows in excess of the IRS’ assumed interest rate (7520 rate), that growth may be passed outside of your estate to your beneficiaries.
GRATs are sometimes used to transfer highly concentrated positions of stock, or otherwise may be used to transfer closely-held business interests. Nevada is an ideal jurisdiction in which to establish a GRAT, because Nevada’s self-settled spendthrift trust laws provide additional asset protection during the annuity period. Further, it is recommended for the remainder interest in the GRAT (the assets that are held in the GRAT after the annuity has been fully paid) be held in a continuing trust for your beneficiaries. This trust can provide creditor and divorce protection for the beneficiaries, and can be structured as a “SLAT” for the benefit of your spouse.
For more information on whether a GRAT may be incorporated into your estate plan, please contact us.