Grantor Retained Income Trust

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Grantor Retained Income Trust (GRIT)

A tax-saving trust in which a grantor transfers property to a beneficiary, but receives income until termination, at which time the beneficiary begins receiving the income.

Grantor Retained Income Trust

A trust in which the grantor places some assets for the beneficiary, but retains the right to receive income from those assets up to a certain point, at which time the beneficiary begins to receive the income. This allows the beneficiary to receive income from the trust without being subject to the estate tax. A disadvantage is the possibility that the grantor will die before the expiration of the trust, which results in the assets transferring to the grantor's estate. In that case, the beneficiary does not receive anything. It is also called a grantor retained annuity trust.
References in periodicals archive ?
A GRAT is designed to transfer wealth to the next generation without paying estate tax to do it.
Some Senate members want the revenues created by changes to the GRAT requirements to be used to increase the threshold of the estate tax and reduce the maximum tax rate on the estate tax, she said.
If, however, the trust instrument permits it, the trustee may defer payment of the annuity until 30 days after the GRAT conversion.
Replacing highly appreciated stock in a GRAT with equally valued assets will protect the appreciated value of the stock for the client's beneficiaries.
The quest for green tourism continues as GrAT begins a new chapter and gears up for its next round of Anahaw certification applications.
The value of the tax break a GRAT can provide depends on the level of the official interest rate used to value the grantor's retained interest.
To avoid these disadvantages, the authors have suggested that certain high-net-worth clients might achieve superior results by using a preferred family limited partnership (PFLP) rather than an intentionally defective grantor trust (IDGT) or a GRAT (see Lusby and Burnett, "Preferred Family Limited Partnerships Offer Estate Tax Advantages," 83 Practical Tax Strategies 79 (August 2009)).
GRATs are typically funded with a gift of assets that are expected to appreciate in value, which then freezes the value of the assets for estate and gift tax purposes.
A GRAT is a trust created to move wealth to the children without gift taxes or estate taxes, while at the same time providing a level of protection against future lawsuits, claims and judgments.
Consequently, execution of a GRAT results in higher wealth-transfer leverage and better economic success as the Section 7520 rate decreases and realized appreciation of the trust assets increases.
With a GRAT, individuals make a gift to the trust and set terms to receive an annuity over a period of years--as if they are paying back a loan to themselves.
The simplified idea behind a GRAT trust is that the principal gets returned to the creator of the trust and the growth goes to the (usually younger generation) beneficiaries without any estate or gift tax.