GRANTOR RETAINED INCOME TRUST
Back to GlossaryDefinition
A trust in which the grantor retains an income or use interest in the trust.
Summary
A Grantor Retained Income Trust (GRIT) is an estate planning tool where a grantor transfers assets to a trust while retaining the right to receive income from those assets for a specified period. After this period ends, the remaining assets pass to beneficiaries (typically family members) at a reduced gift tax value. The key benefit is that any appreciation in the trust assets beyond the IRS assumed rate of return (Section 7520 rate) passes to beneficiaries gift-tax free. However, if the grantor dies during the retained income period, the trust assets are included in their estate for tax purposes.
Usage Context
Understanding GRITs is important when studying advanced estate planning strategies, gift and estate tax minimization techniques, and wealth transfer methods for high-net-worth individuals. This concept typically appears in discussions of grantor trust rules and sophisticated trust arrangements.
Common Confusions
- Confusing GRITs with GRATs - GRITs retain actual income while GRATs retain fixed annuity payments
- Thinking the grantor can reclaim the principal during the trust term
- Misunderstanding that if the grantor dies during the term, estate tax benefits are lost
- Assuming all asset appreciation passes tax-free (only appreciation above the 7520 rate does)
- Confusing the retained income period with the trust's total duration
