GRITs, GRATs, and GRUTs: Reduce Estate Taxes

Summary

How GRITs, GRATs, and GRUTs can shift growth out of your taxable estate while allowing income back to you during the trust term.

Our attorneys help you establish GRITs (Grantor Retained Income Trusts), GRATs (Grantor Retained Annuity Trusts), and GRUTs (Grantor Retained Unitrusts) that allow you to grow your assets without affecting your lifetime estate tax exclusion. These helpful estate planning tools can ensure that large estates pass without taxation to the beneficiaries.

How GRITs, GRATs, and GRUTs reduce tax burdens

GRITs, GRATs, and GRUTs are all grantor trusts. A grantor trust is a trust in which the grantor pays income tax on the trust’s revenue removing the need for the trust and/or beneficiaries of the trust to do so. The main purpose of GRITs, GRATs, and GRUTs is to grow assets without additional estate tax.

Every individual has a lifetime estate tax exclusion. In 2025, that exclusion is $13.99 million for individuals and $27.98 million for married couples. Gifts made during an individual’s lifetime will also count against the total of this exclusion if they are in excess of the annual exclusion amount, which is $19,000 per person per year in 2025. If an estate is any larger than this exemption, then estate taxes will be due on any value over this amount. Estate tax rates can reach up to 40%, so they can significantly reduce how much of a larger estate will go to the heirs.

This is where GRITs, GRATs, and GRUTs can prove beneficial.

When you create one of these trusts, you will fund assets into the trust. The total value of these assets will count against your lifetime gift tax exclusion, but will reduce your estate’s taxable value. However, every year, for a fixed number of years, income generated by these funded assets will be paid out to you, the grantor. The total amount of this income is subtracted from the initial value paid in to the trust.

For example, if you funded $500,000 worth of assets into your trust and you received $300,000 in income over the term of the trust, those assets would only count as $200,000 against your total estate tax exclusion. In some cases, you may even make enough income to completely zero out that initial deduction!

Most importantly, this means that any value the assets gain while in the trust won’t count toward your estate tax exclusion. So, if that $500,000 asset in the previous example grew to be worth millions, it would still only count as $200,000 for estate tax purposes.

The Difference Between GRITs, GRATs, and GRUTs

The main difference between GRITs, GRATs, and GRUTs is how the income that is distributed to the grantor is calculated. Here is a basic overview.

With a GRIT, all income generated is paid out to the grantor. However, GRITs are more limited in their use, as the income generated is not counted towards zeroing out the initial deduction when the beneficiaries are members of the grantor’s family. The only exception to this rule is when the asset funded into the GRIT is the grantor’s residence.

With a GRAT, the grantor is paid a fixed amount of income per year, called an annuity. This annuity is calculated based on a percentage of the asset’s fair market value at the time it is funded into the trust. This percentage is set by the IRS and is currently 5%.

With a GRUT, the grantor is paid income based on a percentage of the asset’s fair market value, similar to a GRAT. Unlike a GRAT, however, the asset’s fair market value is reassessed every year, so the amount of income paid out may vary from year to year. In addition, a GRUT has added utility in that the grantor can fund additional assets into the trust over time, while a GRAT does not allow the contribution of additional assets after trust creation.

When to Use a GRIT, GRAT, or GRUT

Certain estates will benefit from a GRIT, GRAT or GRUT more than others. You may want to consider a GRIT, GRAT, or GRUT if your estate exceeds or is expected to exceed the estate tax exemption amount and one or more of the following is true:

You have high-growth assets to fund into the trust;
Your assets have relatively low risk of loss; or
You have a relatively low risk of death during the term of the GRAT.

Disadvantages of GRITs, GRATs, and GRUTs

Like any estate planning tool, GRITs, GRATs, and GRUTs have their disadvantages. These include:

Irrevocability – GRITs, GRATs, and GRUTs must be irrevocable trusts, which limits your flexibility to amend their terms.
No Step-Up In Basis – Assets in a GRIT, GRAT, or GRUT do not receive the stepped-up basis for tax purposes that estate assets typically receive. This means that your beneficiaries will have to pay more in taxes if and when they decide to sell the trust’s assets. However, with individual tax rates lower than estate tax rates, utilizing a GRIT, GRAT, or GRUT as an estate planning technique may still prove beneficial for your estate planning needs.
Grantor Must Survive The Term – GRITs, GRATs, and GRUTs pay out income to the grantor for a fixed number of years. If a grantor dies before all payments have been made to them, then the trust becomes part of their estate and is taxable as such, defeating the purpose of the trust. Choosing a shorter term for your GRIT, GRAT, or GRUT can mitigate this risk.

Wyoming Trust Attorneys Can Help!

If you think a GRIT, GRAT, or GRUT may be right for you, consider scheduling a consultation with us. Our highly skilled Estate Planning Attorneys can help guide you through the Estate Planning process and help you determine the correct Estate Planning strategy to protect your assets and lower your Estate’s overall tax burden.