Grantor Retained Annuity Trusts, commonly referred to as GRATs, are a financial instrument that allow a property or asset owner to pass appreciating assets to their heirs with minimal, if any, estate tax consequences. Affluent taxpayers often turn to GRATs (and capitalize on the higher estate tax exemption eligible under the Tax Cuts & Jobs Act of 2017) as part of a creative, proactive strategy in planning their estates.

So how can you benefit from a GRAT? The first step is for you, the grantor, to contribute an appreciated asset(s) to an irrevocable, fixed trust. You would then be entitled to receive an annuity from the asset during the term of the trust. Keep in mind, this annuity is not the same as the income generated by the asset. The grantor of the asset is eligible for an annuity based on the fair market value of the asset at the time it was put in trust, not simply the income generated from the asset.

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