GRAT Calculator: Grantor Retained Annuity Trust

Not tax or legal advice. GRAT design requires qualified estate counsel. Verify §7520 rate monthly — it changes.

A zeroed-out GRAT is the workhorse UHNW estate planning tool: transfer appreciating assets into a trust, take back an annuity sized to eliminate the taxable gift, and pass whatever grows above the §7520 hurdle rate to heirs estate-tax-free. Use this calculator to estimate the annuity requirement and projected remainder for a proposed GRAT.

How a GRAT works

A Grantor Retained Annuity Trust is an irrevocable trust you fund with assets today, in exchange for an annuity payable back to you over the trust's term. At the end of the term, whatever remains in the trust passes to your heirs free of estate and gift tax.

The mechanics that make GRATs powerful:

• The §7520 hurdle rate. The IRS values your retained annuity using the §7520 rate — 120% of the mid-term AFR, rounded to the nearest 0.2%. For April 2026 it is 4.6%.¹ Any return above that rate passes to heirs without using a dollar of your $15M lifetime exemption.
• The zeroed-out structure. Size the annuity so the present value of all payments exactly equals the assets transferred. Taxable gift = $0. If the GRAT fails (assets don't beat the hurdle), you simply receive your assets back. No downside — just attorney fees.
• Asymmetric payoff. Heads you win, tails you break even. That's why GRATs are the first tool most UHNW estate attorneys reach for.

Zeroed-out vs. non-zeroed GRATs

A zeroed-out GRAT sizes the annuity to make the remainder interest worth approximately $0 for gift-tax purposes — meaning you use none of your $15M lifetime exemption.² This is the standard approach.

A non-zeroed GRAT intentionally makes a taxable gift of the remainder interest, consuming exemption now in exchange for locking in today's asset value. This was more attractive when the lifetime exemption was scheduled to sunset. Under the OBBBA (July 2025), the $15M exemption is now permanent — which reduces the urgency to pre-fund trusts with taxable gifts, making zeroed-out GRATs even more dominant.

Rolling GRAT strategy

A single 5-year GRAT has one risk: if the grantor dies during the term, the trust is pulled back into the estate. Rolling GRATs — a series of 2-year GRATs funded in sequence — reduce mortality exposure while compounding the wins.

Example: a $30M pre-IPO position subject to a lock-up. You fund a 2-year GRAT today. In 18 months when the first annuity payment comes back, you immediately fund a new 2-year GRAT with those proceeds. Each cycle, appreciation above 4.6% escapes to the dynasty trust. You're never more than 2 years from finishing a term.

Rolling GRATs also let you adapt as the §7520 rate changes. If rates drop next year, the new GRAT benefits from a lower hurdle. If they rise, you've locked some appreciation already.

Best assets for GRATs

A GRAT succeeds by outpacing the §7520 rate. Asset selection matters:

• Pre-IPO equity / founder shares — most common UHNW GRAT asset. Transfer before value step-up at IPO, capture all post-lockup appreciation in trust. Timing is critical (best to fund pre-409A re-valuation if possible).
• PE fund interests / carried interest — §1061 3-year holding period for carried interest can be satisfied inside a GRAT. J-curve means low early value = low annuity payments.
• Closely held business interests — combine with valuation discounts (FLP/LLC, minority interest, marketability) to further reduce the gift-tax value and required annuity.
• High-volatility public equities — GRATs love volatility. A stock that goes up 40% one year and down 10% the next generates net GRAT value even if the average return is modest. This is because losses hurt only the grantor's annuity, while gains go to the trust.
• S&P 500 ETFs — lower expected alpha but still clear 4.6% most years. Good for the "base layer" of a rolling GRAT program.

Avoid in GRATs: assets that produce income but limited appreciation (bonds, REITs, preferred stock) — the annuity obligation consumes the income without leaving a trust remainder. Also avoid assets with pending or illiquid distributions that could disrupt annuity timing.

GRAT vs. SLAT vs. IDGT: when each wins

Most $30M+ families use multiple strategies in combination. A typical UHNW estate plan might: fund GRATs with appreciated operating company interests, fund a SLAT with some exemption for permanent spousal access, and hold the rest in a dynasty trust for GST-exempt multi-generational transfers.

GRAT coordination failures

The most common mistakes in GRAT execution at the $30M+ level:

• Annuity payment timing. The annuity must be paid within the tax year or within 105 days after year-end. Missing deadlines can cause the GRAT to fail on its own terms. This is a trustee-level execution risk — not an advisor-level issue.
• In-kind annuity payments. You can pay the annuity in-kind (using trust assets rather than cash) if permitted by the trust document. This avoids forced sales, but the value on the payment date must equal the annuity obligation. Document carefully.
• State income taxes on grantor trusts. GRATs are grantor trusts — all income/gains flow to the grantor's personal return. In high-tax states like CA (13.3%), this is a real cost to model. Some families pair GRATs with trust-state migration (South Dakota, Nevada) for future grantor trust structures.
• GST tax. GRATs are not efficient GST vehicles — generation-skipping doesn't get a "free lunch" from GRATs the way the gift-tax system does. If multi-generational transfer is the goal, pair the GRAT remainder with a dynasty trust that has separate GST exemption allocated.