A GRAT succeeds specifically when trust assets outperform a published IRS hurdle rate — the excess passes to beneficiaries entirely gift-tax-free.
How it works
Annuity payments back to the grantor are set so the gift tax value at funding is close to zero. If the trust’s actual growth beats the §7520 rate over the term, that excess growth transfers to remainder beneficiaries without using any gift tax exemption.
What this does not include
This models a single lump-sum comparison of ending values at the actual versus hurdle growth rate — a real “zeroed-out” GRAT’s annuity payment schedule and the exact gift tax value calculation involve a full annuity present-value computation this simplified version doesn’t replicate.
How to use this calculator
- Enter the funded amount, the §7520 rate, and the assets’ actual expected growth rate and term.
Frequently asked questions
What happens if the GRAT underperforms the hurdle rate?
Nothing transfers to beneficiaries beyond what the annuity payments already return to the grantor — the GRAT essentially fails to transfer wealth, but doesn’t create an additional tax cost either.
Why is a low §7520 rate favorable for a GRAT?
A lower hurdle rate is easier for the trust’s actual investments to beat, transferring more of the excess growth to beneficiaries tax-free.
Can a GRAT be used more than once?
Yes — a common strategy uses a series of short-term, rolling GRATs rather than one long-term GRAT, reducing the risk that a single bad market period wipes out the whole strategy.
