A grantor retained income trust (GRIT) is a legal and financial arrangement in which an individual, known as the grantor, transfers assets or property into an irrevocable trust while retaining the right to receive income from those assets for a specified period. The grantor, in this case, establishes the trust and designates themselves as the income beneficiary during the duration of the trust.
The main objective of a GRIT is to transfer assets to future generations while minimizing the amount of estate tax incurred upon the grantor's death. By establishing the trust, the grantor effectively removes the transferred assets from their taxable estate. At the same time, they continue to receive income generated by the assets throughout the trust's term, helping ensure financial stability.
The income distributed from the GRIT can take various forms, such as periodic fixed payments, variable payments based on a percentage of the trust's value, or a combination of both. The specific terms and conditions of the trust are typically outlined in the trust agreement established by the grantor.
Once the predetermined term of the trust expires, the remaining assets held in the GRIT pass to the trust's designated beneficiaries, typically the grantor's descendants or other intended recipients. At this point, the assets are no longer subject to estate taxes upon the grantor's death.
Overall, a grantor retained income trust enables individuals to potentially reduce their estate tax consequences while maintaining a steady income stream from the assets transferred into the trust.
