Grantor-retained income trust (GRIT) is an old form of Grantor-Retained Trust set up by individuals to reduce taxes on an estate. To create a GRIT, a grantor creates an irrevocable trust that is for a limited period of time, paying taxes at the outset of the trust. The grantor receives annuity payments based on the income of the trust assets according to rates set by Internal Revenue Service (IRS) regulations (in contrast to GRATs and GRUTs which base their annuities on the fair market value of the assets when given to the trust). At the end of the trust’s lifetime, the assets are passed to the beneficiaries without estate or gift taxes.
GRITs have a few unique elements to them. First, the trust cannot benefit close relatives such as spouses or children of the grantor. Second, if the grantor dies before the trust is supposed to end, the trust will be closed with the assets going to the estate, not the beneficiaries. Thirdly, the trust must be irrevocable in order to receive the tax benefits of a GRIT.
GRITs largely have become outdated since regulations in the 1990s limited the benefits to family members and limited the valuation methods previously used to avoid estate taxes. Now, individuals tend to use other grantor-retained trusts.
[Last updated in January of 2022 by the Wex Definitions Team]