ZEROED-OUT GRAT
A second alternative GRAT structure uses a zeroed-out, or Walton, GRAT. Section 7520 interest rate, the only cost to the grantor will have been the legal and administrative costs of setting up the GRAT.
ZEROED-OUT GRAT WITH INCREASING PAYMENTS
It is possible to combine the previous strategies — a zeroed-out GRAT with increasing annuity payments. However, if the grantor establishes rolling GRATs and dies before the end of the 10-year term, only the value remaining in the active GRATs will be included in his or her estate.
GRATs work best with assets that can outperform the Section 7520 interest rate. In a GRAT that is not structured as a zeroed-out GRAT, a change in valuation of the assets contributed would generally result in a minimal change in the taxable gift amount.
POSSIBLE CHANGES AHEAD
GRATs are excellent vehicles for transferring appreciation to beneficiaries with little to no gift taxes.
References:
Megan M. Burke, C. (2019, October 01). Great time for a GRAT. Retrieved August 19, 2020, from https://www.journalofaccountancy.com/issues/2019/oct/wealth-transfer-grantor-retained-annuity-trusts.html