A Grantor Retained Annuity Trust is a special type of trust designed to minimize or eliminate gift tax on the transfer of a large value of assets or property. For example, you could gift a large amount of securities to a GRAT which is intended to exist for 15 years and pay you 5% of the initial principal balance every year. At the end of the 15 year (or whatever other period you establish) the GRAT ends your heirs (typically children, but generally not later generations) will receive the trust assets. Because the children have to wait 15 years and you receive a periodic annuity payment back to you from the trust, the value of the assets transferred into the trust is reduced substantially for gift tax valuation purposes.
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