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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.
Then, after the annuity term expires, the principal of the trust goes outright to a charity or charities the grantor named in the trust document. If the trust meets the requirements of the IRS regulations, the grantor of the trust will receive a charitable income tax deduction for the calculated future value of the gift.
Walton v. Commissioner, 115 T.C. 589 (2000), [1] a decision of the United States Tax Court in favor of taxpayer Audrey J. Walton, "ruled that a grantor's right to receive a fixed amount for a term of years, if that right is a qualified interest within the meaning of Section 2702(b), [2] is valued for gift tax purposes under Section 7520, [3] without regard to the life expectancy of the ...
During this period, you can cancel your annuity contract for any reason without penalty and get your money back. However, free look periods are short, usually lasting only 10 days after receiving ...
If you use the money from a 401(k), 403(b), traditional IRA, SEP-IRA or SIMPLE IRA to purchase an annuity, it will be classified as a qualified annuity since those are all funded with pre-tax dollars.
Grantor retained annuity trust ('GRAT'): an irrevocable trust whereby a grantor transfers asset(s), as a gift, into a trust and receives an annual payment from the trust for a period of time specified in the trust instrument. At the end of the term, the financial property is transferred (tax-free) to the named beneficiaries.
What you'll pay in taxes for an inherited annuity can depend on whether the annuity is qualified or non-qualified. Qualified annuities are funded with pre-tax dollars; non-qualified annuities are ...
Most asset protection trusts established by U.S. settlors are considered "grantor trusts" under U.S. income tax law, meaning that all income of the trust is reportable on the grantor's (i.e., the settlor's) individual income tax return. Asset-protection trusts do not, in and of themselves, offer any tax advantages under U.S. income tax law.