Advantages and Disadvantages of a Grantor Retained Annuity Trust

The grantor retained annuity trust is a type of estate planning tool that many people used to pass on property to a beneficiary. The grantor puts their property into the ownership of a trust and then takes an annuity payment from it. At a certain point, the assets are then transferred to a family member beneficiary. This particular type of trust has it's share of pros and cons. Here are a few of the advantages and disadvantages of using the grantor retained annuity trust.

No Gift Tax

One of the primary advantages of using the strategy is that you can get by without paying any gift tax. Without a grantor retained annuity trust, you would have to potentially pay estate and gift taxes when you pass your property on to a family member. With many other trust arrangements, you would still have to pay gift taxes as well. By using this structure, you can keep more of your assets for your beneficiaries and prevent giving them to the IRS.

Annuity Payment

Another advantage of using this system is that you can receive an annuity payment for a certain number of years from the trust. If you have substantial financial assets that can produce you an income, you can still have access to them with this vehicle. With some of the trust arrangements that are available, you may not have full access to the assets that you put into the trust. This means that you would have to hold back some of your assets in order to continue living comfortably. With the grantor retained annuity trust, you do not have to worry about this problem and you can still generate a comfortable income.

Provide for a Family Member

By using the grantor retained annuity trust, you will be able to provide for a family member financially. After taking an annuity payment for a certain amount of time, you will be able to pass your assets on to the family member of your choice.


One of the disadvantages of using this particular system is that it can by costly to establish this type of trust. When you set up a trust, you will have to hire an estate planning attorney to handle the details. You will have to pay them, and you will also have to pay the trustee to keep track of your assets. If you have substantial assets, the amounts can be nominal, but it can eat into the amount that you are able to put into the trust.

Deferred Transfer

Another disadvantage is that you have to do for the transfer of assets to your family member. You have to take an annuity payment for a certain amount of time before you can move the money to your beneficiary. If they need help immediately, you will have to come up with another way to give them the assets.

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