A GRAT is the cleanest tool in the estate planning toolkit: you transfer an asset into a trust, take back fixed annuity payments equal to the asset's value plus the IRS hurdle rate, and anything left over passes to your heirs gift-tax-free. If the asset underperforms, the GRAT simply unwinds — the failure mode is harmless.
Key Points
You transfer $10M of an appreciating asset into a 2-year GRAT. The IRS values your retained annuity at $10M plus the §7520 hurdle rate. The remainder gift is calculated as zero. If the asset grows to $14M, the annuity returns $10M plus interest to you, and the remaining $3.5M+ passes to the trust beneficiaries with no gift tax used.
Volatility is your friend. A 2-year GRAT captures a spike and locks it in. A 10-year GRAT averages out the wins with the losses. Rolling 2-year GRATs — re-GRATting the annuity payments as they come back — compound the strategy across market cycles. The administrative cost is real but small relative to the transfer efficiency.
Frequently Asked
The annuity payments simply return the original value plus interest, and the GRAT terminates with no remainder. You are no worse off than if you had never created it (except for legal and administrative fees).
The IRS hurdle rate published monthly — currently in the 4–5% range. Anything the GRAT earns above that rate passes to beneficiaries gift-tax-free.
Next Step
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.