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A grantor-retained annuity trust (commonly referred to by the acronym GRAT) is a financial instrument commonly used in the United States to make large financial gifts to family members without paying a U.S. gift tax.
The term "grantor trust" also has a special meaning in tax law. A grantor trust is defined under the Internal Revenue Code as one in which the federal income tax consequences of the trust's investment activities are entirely the responsibility of the grantor or another individual who has unfettered power to take out all the assets. [20]
A grant, in law, is a transfer of property, generally from a person or other entity giving the property (the grantor) to a person or entity receiving the property (the grantee). [ 1 ]
The extensive guarantees and protections offered by grant deeds include assurances of the grantor's legal authority to transfer ownership, the absence of undisclosed claims or encumbrances on the property, and protection against defects in title. [1] Understanding liens and encumbrances is important in real estate transactions.
Residence trusts in the United States are used to transfer a grantor's residence out of the grantor's estate at a low gift tax value. Once the trust is funded with the grantor's residence, the residence and any future appreciation of the residence are excluded from the grantor's estate, if the grantor survives the term of the trust, as explained below.
In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. [ a ] Where the trust is a testamentary trust , the settlor is usually referred to as the testator .
A fiduciary trust is a fiduciary relationship in which a trustee holds the title to assets for the beneficiary.The trust's creator is called the grantor and a fiduciary trust is structured under trust law.
The creator of a trust is often called the "trustor", "grantor", or "settlor" of the trust. A trust generally will not be treated as a spendthrift trust unless the trust agreement contains language showing that the creator intended the trust to qualify as spendthrift.