How a GRAT works
You transfer an asset (e.g., founder stock) to the GRAT.
If the asset does not outperform the hurdle, the GRAT simply unwinds.
GRATLegacy Counsel
GRAT Attorney — Grantor Retained Annuity Trusts
Quick answer: A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust you fund with an asset expected to appreciate.
Key Points
- ◆Who it is for: founders pre-exit, executives with RSUs and concentrated stock, owners of rapidly appreciating private companies
- ◆What it solves: transferring future appreciation out of the estate with little or no use of lifetime exemption
- ◆Works best with volatile or pre-IPO assets where actual appreciation will outrun the IRS §7520 hurdle rate
- ◆Grantor must survive the term — short "rolling GRATs" mitigate mortality risk
Common mistakes we fix
Funding a GRAT with a slow-growing or income-only asset that cannot beat the hurdle rate.
Single long-term GRATs instead of rolling short-term GRATs, which compound winners and bury losers.
Failing to coordinate with §83(b), QSBS, and Rule 144 issues for founder stock.
New York, New Jersey & Ohio considerations
New York: GRATs are widely used by NYC executives and founders to move RSU and pre-IPO equity appreciation out of the New York estate tax cliff.
New Jersey: no state estate tax, but GRATs remain a core tool for founders with NJ residency and significant equity positions.
Ohio: founder-friendly trust environment; GRATs combined with Ohio dynasty trusts can move appreciation out of estate and into a long-term generational structure.
How Legacy Counsel helps
We coordinate GRAT funding with company counsel, the cap table, and your wealth advisor — including QSBS stacking where eligible.
Frequently Asked
What happens if I die during the GRAT term?+
The remaining trust assets are pulled back into your estate as if the GRAT never happened.
Do GRATs use my lifetime exemption?+
A properly structured "zeroed-out" GRAT uses little or none of it, because the annuity you retain is valued at close to the full value of what you contribute. Any remaining gift element is reported on a gift tax return in the year of funding.
Can I use a GRAT with pre-IPO stock?+
Yes, and it is one of the higher-leverage uses — but it takes a defensible valuation, transfer restrictions in the company documents to be cleared, and coordination with §83(b), QSBS holding periods, and securities-law limits on transfer.
How is a GRAT different from a SLAT?+
A GRAT freezes value using little or no exemption, pays the annuity back to you, and requires you to survive the term. A SLAT is a completed gift that uses exemption now and gives your spouse access to the trust. They solve different problems and are often used in sequence rather than as alternatives.
Next step
Talk to Legacy Counsel
Fixed-fee estate planning for clients in New York, New Jersey, and Ohio.
Drew Jacobs is licensed in New York, New Jersey, and Ohio. Nothing on this page constitutes legal advice or an offer to represent you in a jurisdiction in which we are not licensed.
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