Grantor Retained Trust
What Does Grantor Retained Trust Mean?
A grantor retained trust (GRAT) is an irrevocable trust that allows the owner to place assets, such as stocks or property, into the trust, with the assets eventually passing to a named beneficiary or beneficiaries, such as the trust owner’s children. Once assets are placed into the GRAT, they become the trust’s property, and the action cannot be undone.
These trusts are retained for a specified term, during which the trust owner continues to receive income from the assets or retains use of the property. After the term ends, the assets pass to the designated beneficiaries.
Insuranceopedia Explains Grantor Retained Trust
There are three types of grantor-retained trusts:
- Grantor Retained Annuity Trusts (GRATs): With annuity trusts, the trust owner receives a fixed amount of money at regular intervals (such as monthly, quarterly, semi-annually, or annually) for the duration of the trust term.
- Grantor Retained Unit Trusts (GRUTs): With unit trusts, the trust owner receives a specified percentage of the value of the trust at regular intervals during the trust’s term.
- Grantor Retained Income Trusts (GRITs): With income trusts, the trust owner retains the income generated by the assets or property, or the use of the property (such as the home they live in), for the duration of the trust.
These trusts are primarily used by wealthy individuals to reduce estate taxes. However, they are highly complex and, in some cases, may not provide the expected tax benefits. It is crucial to consult with a knowledgeable financial adviser before establishing such trusts.
