What are GRATS and GRUTS?
“GRAT” is an acronym standing for “grantor retained annuity trust.” “GRUT” stands for “grantor retained unitrust.” These types of trusts, specifically authorized by the Internal Revenue Code, are created by an individual (the “grantor”). The trustee can be the grantor or some other individual or institution. The trust is funded with assets that generate income — such as real estate, cash, stocks, bonds, etc. In each case, the grantor retains the right to receive payments from the trust for a term of years or for the grantor’s life. In order to qualify as a GRAT or GRUT under current tax laws, the trust must be irrevocable. When the trust ends, the assets pass to someone other than the grantor – usually the grantor’s family members (i.e., his or her heirs). A GRAT pays a fixed amount to the grantor. Payments must be made once a year, or more frequently, and are not dependent on the actual income earned by the trust. The payment must be equal to or greater than 5% of the assets contribu
