Grantor Retained Annuity Trust (GRAT)
Categories: Trusts and Estates
You're getting up there in years. You've started eating dinner at 4 pm, and you've found you really like watching reruns of NCIS. You don't think they've made a worthwhile movie since 1985, and Werther's Originals are your favorite snack.
In other words, you don't have much time left.
Time to set up a Grantor Retained Annuity Trust. These financial instruments allow you to minimize the tax burden related to estate planning. Meaning: more of your money will go to your heirs and less will go to the government.
The rules work like this: you put your stuff in an irrevocable trust (which means you better be sure...you're not getting the stuff back once you set up the GRAT). The trust exists for a certain period of time (usually some number of years). Taxes get paid when the trust is set up.
The trust pays out an annuity as long as it exists. When the time period expires, the assets in the trust go to the GRAT's beneficiaries. This distribution takes place tax-free.
Meanwhile, you get to continue to suck on Werther's Originals and watch NCIS in peace, knowing that your heirs will get your stuff without having to pay gift or inheritance taxes.