A grantor retained annuity trust (GRAT) is an irrevocable trust where you transfer assets and retain an annuity payment for a set term. If the assets outperform the IRS Section 7520 rate, the excess appreciation passes to your beneficiaries free of gift tax.
A zeroed-out GRAT eliminates your initial gift-tax liability and rolling short-term GRATs (two to three years) give you multiple shots at appreciation.
GRATs work especially well for preliquidity company stock you expect to grow. Because the strategy hinges on timing and asset selection, coordinate with your wealth advisor and estate attorney before funding.
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