When a financial planner is steering a client towards a grantor retained annuity trust (GRAT) they should do so with a cautious eye. “In a nutshell, GRATs are irrevocable trusts that let wealthy individuals (grantors) shift substantial sums of money to family members, while bypassing traditional federal estate and gift tax liabilities, both which currently stand at 40%.” If a GRAT is to be successful then it must outperform the 7520 interest rate which is a figure that was declared when the trust was first created. This figure that is linked to the auction of 3-to-9 year treasury notes is calculated monthly by the IRS. Right now GRATs are an attractive transfer vehicle because the 7520 rate is low, but that might change in the future if the rate rises.
See Andrew Bloomenthal, Grantor Retained Annuity Trusts: What You Need to Know, Investopedia, December 25, 2015.
