Definition for: GRAT
A "GRAT" or "grantor retained annuity trust" is a trust with a set expiration date into which the grantor places assets and then receives income from the interest on the assets. When the trust expires, the beneficiary receives ownership of the assets, provided the grantor is still alive. If the grantor dies before the expiration date of the trust, the assets become part of the grantor's taxable estate. The GRAT is a tax management strategy that can be used to minimize intergenerational tax burden: the grantor pays a tax when the trust is set up, and the beneficiary receives the assets tax free.
