Grantor Retained Annuity Trust (GRAT)

A grantor retained annuity trust (GRAT) is a financial instrument used in estate planning to minimize taxes on large financial gifts to family members. Under these plans, an irrevocable trust is created for a certain term or period of time. The individual forming the trust establishes a gift value when the trust is created. Assets are placed under the trust and then an annuity is paid out to the grantor every year. When the trust expires and the last annuity payment is made, the beneficiary receives the assets and pays little or no gift taxes.