In a grantor-retained annuity trust (GRAT),
A) there is an attempt to minimize taxes on a family by creating two classes of stock-preferred stock, whose value is locked in, and common stock, whose value reflects the market value of the business.
B) a business owner can pass on up to $10,000 annually which is exempt from federal gift taxes.
C) the grantor retains the voting power and interest income from the stock in the trust for up to ten years before the business goes to the beneficiaries.
D) the surviving owner or heir of a family business has the right to purchase the stock of the deceased owner at a price established by a predetermined formula.

Question

Quizplus · Accepted Answer

In a grantor-retained annuity trust (GRAT), the grantor retains the interest income from the stock in the trust for up to ten years before the business goes to the beneficiaries. The purpose of a GRAT is to transfer assets to beneficiaries with minimal or no gift or estate taxes. The grantor makes an irrevocable gift of stock, but retains the annuity payment, which means the grantor receives a fixed payment annually for a set number of years. At the end of the term, any remaining assets in the trust pass on to the beneficiaries designated by the grantor.

In a Grantor-Retained Annuity Trust (GRAT)