A GRAT or Grantor Retained Annuity Trust is an estate planning technique that minimizes the tax liability existing when transfers of estate assets occur. Under a GRAT, an irrevocable trust is created for a certain term or period of time. The individual establishing the trust pays the taxes associated with income and the transfers. As long as the individual outlives the term of the GRAT then the assets that are transferred go to the beneficiary free of Estate taxes.
GRAT’s are typically used with high net worth individual who want to reduce the amount of estate taxes their estate will be subject to.