grantor-retained trust

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Grantor-retained trusts are irrevocable trusts created to reduce estate taxes.  With each, the grantor receives some form of income from the trust for a set amount of years, and then the property is transferred to a beneficiary free of estate taxes. These trusts are used mostly by wealthy individuals to limit estate and gift taxes because they create these trusts with high-growth assets which do not incur taxes on the increased value of the assets during the life of the trust. There are three main types of grantor-retained trusts:

  1. grantor-retained annuity trusts (GRATs),
  2. grantor-retained unitrusts (GRUTs), and
  3. grantor-retained income trusts (GRITs)

[Last updated in January of 2022 by the Wex Definitions Team]