GRAT Calculator (Grantor Retained Annuity Trust)

A Grantor Retained Annuity Trust is an irrevocable trust where you (grantor) transfer assets to the trust and receive fixed annuity payments for a set term (typically 2-10 years). Any growth above the IRS Section 7520 hurdle rate passes to the remainder beneficiaries (usually children or trusts for them) at the end of the term with NO additional gift tax. If structured as a "zeroed-out" GRAT, the gift value is essentially $0 - yet appreciation transfers tax-free.

The 7520 rate is the IRS-published interest rate used to value annuity, life-income, and remainder interests in trusts. It is set monthly at 120% of the mid-term applicable federal rate (AFR). For May 2026 it is approximately 5.4%. GRATs work best when the underlying asset GROWS faster than this rate - the growth differential is what transfers tax-free. Lower 7520 rates = easier hurdle = bigger transfers.

If the grantor dies during the GRAT term, all GRAT assets are pulled back into the grantor's estate at fair market value - the strategy fails completely. This is why most planners use SHORT-TERM GRATs (2-3 years) and "roll" them - each year's annuity payment funds a new 2-year GRAT. Rolling GRATs minimize mortality risk while capturing volatility upside.

High-growth, high-volatility assets that you believe will significantly outperform the 7520 rate. Classic examples: pre-IPO stock, concentrated equity positions in volatile companies, hedge fund interests, restricted stock that's about to vest, real estate in a hot market. Low-growth assets like bonds or dividend-only stocks generally don't justify the legal/accounting complexity ($5K-$20K to establish).