In a GRAT, what does the grantor retain for a fixed term?

In a GRAT, what does the grantor retain for a fixed term?

• A. A fixed annuity payment is promised to the grantor for a term.
• B. The grantor transfers ownership of all assets to the beneficiaries immediately.
• C. The right to revoke the GRAT.
• D. The grantor retains a fixed annuity payment for a term.

Answer: (D)

In a GRAT the key idea is that the grantor keeps a fixed stream of payments from the trust for a set term. The grantor transfers assets into an irrevocable trust but retains the right to receive a fixed annuity payment for a defined period. At the end of that term, any remaining trust assets pass to the designated beneficiaries, often with favorable gift tax treatment if the assets grow faster than the IRS (7520) rate. This retained fixed annuity is the mechanism that defines the GRAT and allows the transfer of future appreciation to beneficiaries with minimized gift tax. The phrasing focuses on the grantor’s retained interest rather than a revocation right or an immediate transfer of assets to beneficiaries.

In a GRAT the key idea is that the grantor keeps a fixed stream of payments from the trust for a set term. The grantor transfers assets into an irrevocable trust but retains the right to receive a fixed annuity payment for a defined period. At the end of that term, any remaining trust assets pass to the designated beneficiaries, often with favorable gift tax treatment if the assets grow faster than the IRS (7520) rate. This retained fixed annuity is the mechanism that defines the GRAT and allows the transfer of future appreciation to beneficiaries with minimized gift tax. The phrasing focuses on the grantor’s retained interest rather than a revocation right or an immediate transfer of assets to beneficiaries.