Grantor Retained Annuity Trust (GRAT) - US

Overview

A Grantor Retained Annuity Trust (GRAT) is a powerful estate planning tool that allows clients to transfer appreciating assets to beneficiaries with minimal or no gift tax. In Voyant, GRATs are modeled with a framework that reflects both IRS regulations and best practices in estate planning.

This article will walk through:

• What a GRAT is and how it works

• How to create a GRAT in Voyant 

• Key assumptions and IRS mechanics

• Important modeling features and logic

• Tips for structuring GRATs within a plan

1. GRAT Basics: What It Is and How It Works

In a GRAT:

• The grantor contributes assets into an irrevocable trust.

• The grantor receives fixed annuity payments for a defined term (typically 2–10 years).

• At the end of the term, any remaining value in the trust passes to the named beneficiaries—usually children or irrevocable trusts for descendants.

Note: The “annuity” here refers to a return of capital plus a theoretical interest rate (the IRS §7520 rate). It’s not traditional income.

If the grantor survives the GRAT term, the growth of the assets (beyond the hurdle rate) passes to the beneficiaries free of estate tax, making the GRAT a success from a transfer tax perspective.

Creating a GRAT in Voyant

To model a GRAT in Voyant:

1. Click the (+) button in the bottom right corner of the Dashboard

2. Select Trusts

3. From the Type dropdown, choose Grantor Retained Annuity Trust (GRAT)

To fund the GRAT:

• Go to the (+) button and select Transfers

  

• Move specific appreciating assets into the GRAT

Core Modeling Logic in Voyant

1. Annuity Payment Calculation

• Voyant follows IRS rules requiring fixed annuity payments to the grantor.

• These payments are structured to return the present value of the contributed asset over the GRAT’s term, discounted at the IRS §7520 rate.

• GRATs in Voyant typically model a “zeroed-out GRAT,” meaning the annuity is calculated to result in little or no taxable gift.

• The focus is on excess appreciation: any growth above the hurdle rate transfers to the beneficiaries at the end of the term.

2. Hurdle Rate Selection (§7520 Rate)

• The §7520 rate is an IRS-published rate used to discount future annuity payments.

• Voyant allows planners to input this rate, choosing either:

  • The rate in effect at the time of funding

  • Or one of the two prior months (per IRS rules)

• A lower hurdle rate improves the chance of GRAT success.

Tip: You can adjust the default hurdle rate in Plan Settings.

3. Term of the GRAT

• Industry practice recommends GRAT terms of 2 to 10 years.

• The selected term impacts:

  • Duration of annuity payments

  • Timing of remainder transfer to beneficiaries

  • Mortality risk (grantor must survive the term)

Voyant incorporates this mortality risk when modeling the GRAT timeline.

4. Roles and Beneficiaries in the GRAT

Grantor

• Must be an individual (not a trust or corporation)

• Typically, a parent transferring wealth to the next generation

• In Voyant, only a person can own a GRAT, aligning with IRS rules

  

Beneficiaries

• Often, children or irrevocable trusts (e.g., dynasty trusts)

• Irrevocable trusts help shelter assets from future estate taxes

• Naming grandchildren directly may trigger Generation Skipping Transfer Tax (GSTT) concerns, so this is generally avoided

  

Summary of Key Modeling Considerations in Voyant

Final Notes

GRAT modeling in Voyant gives advisers a clear and powerful tool to demonstrate strategic estate planning techniques. By aligning with IRS assumptions and estate planning best practices, the GRAT structure can showcase how proper planning leads to tax-efficient wealth transfer and client peace of mind.