Grantor Retained Trust (GRAT)


Definition - What does Grantor Retained Trust (GRAT) mean?

A grantor retained trust (GRAT) is an irrevocable trust that allows the owner to place assets such as stocks or property into a trust that will eventually pass to a named beneficiary or beneficiaries, such as the trust owner's children. These trusts are irrevocable; once assets have been placed into the grantor retained trust they become its property the act cannot be undone.

These trusts are retained for the term during which the owner of the trust will receive income from the assets or have use of the property.

Insuranceopedia explains Grantor Retained Trust (GRAT)

There are three types of grantor retained trusts:

  1. Grantor retained annuity trusts.
  2. Grantor retained unit trusts.
  3. Grantor retained income trusts.

With annuity trusts, the trust owner receives a fixed amount of money at regular intervals (for example monthly, quarterly, semi-annually, or annually) for the term of the trust.

With unit trusts, the trust owner receives a specified percentage of the value of the trust at regular intervals for the term of the trust.

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 you live in), for the term of the trust.

These trusts are mostly used by wealthy individuals to reduce taxes on their estate. They are extremely complex, and in some circumstances might not reduce taxes. A knowledgeable financial adviser should be consulted before creating such trusts.

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