GRAT Calculator 2026 — Grantor Retained Annuity Trust

A Grantor Retained Annuity Trust (GRAT) lets you transfer assets to a trust while retaining a fixed annuity payment for a set term. The IRS values your retained interest using the Section 7520 rate. If your assets grow faster than the 7520 rate, the excess appreciation passes to beneficiaries gift-tax free. The initial taxable gift is typically very small (or zero with a "zeroed-out" GRAT).

A zeroed-out GRAT sets the annuity payout so that the present value of the retained annuity exactly equals the contribution, making the gift value approximately $0. This eliminates any gift tax exposure. If the trust assets grow faster than the Section 7520 rate, beneficiaries receive the excess with no gift tax. The trade-off is that if you die during the term, assets are included back in your estate.

The Section 7520 rate is 120% of the applicable federal mid-term rate, published monthly by the IRS. For March 2026 it is approximately 5.2%. The 7520 rate is the "hurdle rate" — your trust assets must grow faster than this rate to produce any benefit. Lower 7520 rates make GRATs more effective, as a smaller portion of asset growth is owed back as annuity payments.

If the grantor dies during the GRAT term, the entire trust value is included in the estate for estate tax purposes — as if the GRAT never existed. However, you are no worse off than not having done the GRAT. This "mortality risk" is why short-term (2-year) rolling GRATs are popular: each term is brief, reducing the chance of dying during the term while repeatedly capturing upside.

A rolling GRAT creates a series of short-term (typically 2-year) GRATs back-to-back. When the first GRAT matures and pays back the annuity, those funds are contributed to a new GRAT. This strategy: (1) minimizes mortality risk from short terms, (2) continuously captures upside in volatile assets, and (3) automatically reinvests if the trust underperforms. It is especially effective for assets expected to appreciate significantly, like pre-IPO stock.