✏️ Your GRAT Terms

Assets Transferred ($)

IRS §7520 Rate (%)

The monthly federal rate for the month the trust is funded.

Annuity Term (years)

Expected Asset Growth (%)

Your assumed annual investment return.

💰 Your GRAT Projection

Annual Annuity Payment$0

Taxable Gift$0

Remainder to Heirs$0

Estate Tax Saved (40%)$0

📊 Worked GRAT Examples

Assets	§7520 Rate	Term	Growth	Annuity	Remainder to Heirs
$1,000,000	5.0%	2 yr	8.0%	$537,805	$63,900
$2,000,000	5.0%	3 yr	9.0%	$734,417	$274,808
$5,000,000	4.0%	5 yr	8.0%	$1,124,627	$1,247,000

Assumes a zeroed-out GRAT (gift = $0) with all annuity payments reinvested at the §7520 rate. Rows generated from the same formula the calculator uses.

📖 How a GRAT Works

A grantor retained annuity trust is an irrevocable trust to which you transfer assets while keeping the right to receive a fixed annuity back for a set number of years. Because you keep an annuity, the taxable gift you make when funding the trust is the value of the transferred assets minus the present value of the annuity you retain.

The "zeroed-out" strategy

If you set the annuity so its present value equals the full value of the assets (using the IRS §7520 rate as the discount rate), the gift is $0 — nothing is added to your lifetime exemption. Any growth above the §7520 rate then passes to the trust remainder beneficiaries free of gift and estate tax. This calculator solves for that zeroing annuity:

Annuity = Transfer ÷ [ (1 − (1 + r)⁻ⁿ) ÷ r ]

where r is the §7520 rate and n is the term in years.

What determines the remainder

Growth above the hurdle: the wider the gap between asset return and the §7520 rate, the larger the tax-free remainder.
Mortality risk: if the grantor dies during the term, some or all of the assets return to the estate and the benefit is lost. Shorter terms reduce this risk.
Rolling GRATs: many planners use a series of short (2–3 year) GRATs to capture volatility and limit downside.

Reporting

The transfer is reported on Form 709, and the trust files Form 1041 (or is a grantor trust, taxed to you).

Why a GRAT Beats an Outright Gift

An outright gift transfers both the asset and all its future growth, using up precious lifetime exemption on day one. A GRAT transfers only the growth above the §7520 hurdle — and when it is zeroed out, it transfers that growth while consuming none of your exemption at all. A married couple with $27.2 million of exemption (2026) may not feel urgency, but a couple whose estate is projected to outgrow the exemption sees a GRAT as a way to move appreciating assets out of the taxable estate at essentially zero gift cost.

The catch is the hurdle rate. When the §7520 rate is low and markets are strong, a GRAT is exceptionally efficient. When the rate is high or the asset underperforms, the remainder can be zero and nothing is lost but the legal and filing fees. That asymmetric payoff — upside captured, downside limited to the cost of setup — is why GRATs remain the workhorse of estate freeze planning.

Frequently Asked Questions

What is a GRAT?

A grantor retained annuity trust is an irrevocable trust that pays you a fixed annuity for a set term. If the assets grow faster than the IRS Section 7520 hurdle rate, the excess passes to your heirs free of gift and estate tax.

How is the GRAT gift value determined?

The taxable gift is the present value of the remainder after subtracting the annuity's present value, both discounted at the 7520 rate. A low 7520 rate makes the annuity cheaper in present-value terms and enlarges the tax-free remainder.

What happens if the assets underperform?

If the trust grows at or below the 7520 rate, the remainder is zero and nothing passes free of tax. The downside is limited to the legal and setup costs, which is why zeroed-out GRATs are considered low-risk.

Can I use a GRAT more than once?

Yes. Rolling short-term GRATs let you lock in gains year by year. Because the remainder is valued at the end of each term, a series of short GRATs can outperform a single long one when markets are volatile.

Do I need to outlive the GRAT?

Yes. If you die during the term, the assets are pulled back into your estate and the estate-tax benefit is lost. That is why terms are often kept short for older grantors.

⚠️ Important: A GRAT is a sophisticated estate-planning tool. If the grantor dies during the annuity term, the assets are pulled back into the estate and the planning fails. §7520 rates change monthly and the assumptions here are illustrative. Consult a qualified estate attorney and CPA before implementing.