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Simple English definitions for legal terms
GRAT
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A quick definition of GRAT:
Term: GRAT
Definition: A GRAT is an abbreviation for Grantor-Retained Annuity Trust. It is a type of trust where the person creating the trust (the grantor) retains the right to receive a fixed amount of money (an annuity) from the trust for a set number of years. After the annuity period ends, any remaining assets in the trust are passed on to the trust beneficiaries.
A more thorough explanation:
GRAT
GRAT stands for Grantor-Retained Annuity Trust. It is a type of trust that allows the grantor (the person who creates the trust) to transfer assets to the trust while still receiving a fixed income from those assets for a set period of time. After that time period, the remaining assets in the trust are transferred to the beneficiaries.
For example, let's say John wants to transfer some of his assets to his children but still wants to receive income from those assets for the next 10 years. He creates a GRAT and transfers the assets to the trust. The trust then pays John a fixed income for the next 10 years. After that time period, the remaining assets in the trust are transferred to John's children.
Another example is if Sarah wants to transfer some of her assets to her grandchildren but wants to avoid paying gift taxes. She creates a GRAT and transfers the assets to the trust. The trust then pays Sarah a fixed income for a set period of time. After that time period, the remaining assets in the trust are transferred to Sarah's grandchildren without incurring gift taxes.
These examples illustrate how a GRAT works by allowing the grantor to transfer assets to a trust while still receiving income from those assets for a set period of time. This can be useful for estate planning purposes, such as transferring assets to beneficiaries without incurring gift taxes or providing income for the grantor while still transferring assets to beneficiaries.