We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
Understanding Grantor Retained Income Trust (GRIT): A Comprehensive Guide
Definition & Meaning
A grantor retained income trust (GRIT) is a specific type of irrevocable trust created through a formal written agreement. In this arrangement, the grantor transfers assets into the trust but retains the right to receive income generated by those assets for a designated period. The trustee is responsible for distributing the net income to the grantor, either annually or more frequently, as outlined in the trust agreement. Once the initial term ends, the remaining assets are either distributed to designated beneficiaries, such as the grantor's nieces and nephews, or held in trust for their benefit. If the grantor survives the trust's term, the assets in the GRIT are excluded from their estate for federal estate tax purposes, which can help reduce potential estate taxes if the grantor outlives the trust's termination date. An important advantage of a GRIT is that the assets transferred are typically valued at a discount for federal gift tax purposes.
Table of content
Legal Use & context
GRITs are primarily utilized in estate planning to help individuals manage their assets while minimizing tax liabilities. They are relevant in areas of law such as estate planning and tax law. Users can create GRITs using legal templates available through services like US Legal Forms, which provide guidance on drafting the necessary documents. However, due to the complexities involved, it may be advisable to consult with a legal professional for tailored advice.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A grantor, John, transfers his investment properties into a GRIT. He retains the rental income for ten years. After this period, the properties are transferred to his nieces. If John survives the ten years, the properties are not included in his estate for tax purposes.
Example 2: A grantor, Sarah, creates a GRIT with stocks and bonds. She receives annual income from these investments for five years, after which the assets go to her nephews. If Sarah outlives the five years, the assets are excluded from her estate.
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Differences
California
Specific rules regarding asset valuation may apply.
New York
Additional state tax considerations may exist.
Texas
No state income tax, which may affect the overall tax strategy.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Description
Grantor Retained Annuity Trust (GRAT)
A trust where the grantor receives fixed payments for a term, with remaining assets going to beneficiaries.
Irrevocable Trust
A trust that cannot be altered or revoked once established, unlike a GRIT which has specific income retention terms.
Living Trust
A trust created during the grantor's lifetime that can be modified or revoked, unlike a GRIT.
Common misunderstandings
What to do if this term applies to you
If you are considering establishing a GRIT, it is essential to evaluate your financial situation and estate planning goals. You can explore ready-to-use legal form templates through US Legal Forms to assist in creating the necessary documents. However, given the complexities of estate planning, consulting with a legal professional is recommended to ensure compliance with all applicable laws and to tailor the trust to your specific needs.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.
Tax Benefits: Excludes assets from estate tax if grantor survives the term
Income Distribution: Annually or as specified in the trust agreement
Beneficiaries: Typically family members or specified individuals
Key takeaways
Frequently asked questions
The primary benefit is the potential reduction in estate taxes, as the trust's principal is excluded from the grantor's estate if they survive the trust term.
No, a GRIT is irrevocable, meaning its terms cannot be changed once it is set up.
Beneficiaries can be family members, such as nieces and nephews, or any individuals specified in the trust agreement.
The income received by the grantor is typically subject to income tax, as it is considered part of their taxable income.
While legal templates are available, consulting a lawyer is recommended to ensure compliance with legal requirements and to tailor the trust to your needs.