A grantor retained annuity trust (GRAT) is an irrevocable trust in which the grantor transfers assets but retains the right to receive a fixed annuity for a term of years. At term end, remaining assets pass to beneficiaries (often children) with gift value equal to the actuarial remainder using the 7520 rate. If investment performance exceeds the assumed rate, the excess transfers with minimal gift tax. If the grantor dies during the term, some or all value may be included in the estate. GRATs are used to shift future appreciation while retaining predictable cash flow.

Owners contribute appreciating assets to a GRAT, receive fixed annuity payments, and let the remainder pass to family. Advisors monitor performance versus the 7520 rate and consider rolling GRATs to capture volatility. Attorneys prepare 709s showing the calculated gift.