GRATS: On a RollGRATS: On a Roll

Julie K. Kwon, senior tax and estate planning analyst, and Daniel J. Loewy, research director, We

The impact of decisions that planners make about GRATs in transferring wealth can now be more precisely quantified. Advances in quantitative modeling and capital-markets forecasting allow us to evaluate the interactions among the moving parts that determine the success of a grantor retained annuity trust (GRAT),¹ including the trust's term and allocation, the Internal Revenue Code Section 7520 hurdle rate and prevailing market valuations.

Using this analytical framework,² we can assert that for most grantors, short-term rolling trusts will meet objectives better than a single long-term GRAT — and can even outperform an installment sale to an i...