LONGER-TERM GRAT
Six-year GRAT
Beneficiary assets at year 6$113,717.70
- Held by the donor
- $1,473,156.62
- In active trusts
- $0.00
- Total assets, all three locations
- $1,586,874.32
All modeled trusts have finished.
EDUCATIONAL GUIDE Hypothetical examples · Before tax and cost
WEALTH TRANSFER / GRATs
Rolling vs. term GRATs
Enter a starting contribution, annual returns and funding-rate assumptions to compare one six-year GRAT with a rolling program of two-year trusts. The worked example below explains how the schedules differ.
Rolling short GRATs can distribute a remainder sooner. A longer GRAT keeps its starting §7520 rate for the full term. Neither wins automatically: compare the same starting assets and returns, trace each annuity, and test future rates and family cash needs. The illustration below is before tax and cost.
Research checked October 18, 2026 · U.S. federal baseline
Altar Rock · GRAT comparison
Altar Rock Insights · Educational illustration
Your assumptions · Educational illustration
Build your GRAT comparison
Set your starting amount, returns and funding rates. Select Update comparison to see both schedules.
Before tax and cost. Educational only; no recommendation or estate-tax calculation.
Read the applied assumptions
Assumptions behind these results
Starting contribution: $1,000,000.00. Level annual payments; no new funding after year 4. All trusts finish by year 6. Investment returns are 8% in every year and every location.
The initial 5.6% funding rate matches October 2026. Repeating 5.6% for successor trusts is hypothetical. Annual-end payments; no outside contributions, taxes, costs, spending or mortality. Present-value-derived annuities target an approximately zero initial remainder value; this is not a taxable-gift calculation.
RESULTS AT THE END OF YEAR 6
These results follow the assumptions above. Beneficiary assets include growth after earlier trusts finish.
ROLLING GRAT PROGRAM
Rolling two-year GRAT program
Beneficiary assets at year 6$179,248.70
- Held by the donor
- $1,407,625.62
- In active trusts
- $0.00
- Total assets, all three locations
- $1,586,874.32
All modeled trusts have finished.
Holding the same assets, without a GRAT$1,586,874.32
In this before-tax, before-cost example, each strategy has the same total assets across the donor, beneficiaries and active trusts. The ownership differs. Investment gains are not created by moving assets into a trust.
Dollar values are independently rounded for display. Components may sum a cent differently from a displayed total. Annuity receipts are value received, not necessarily cash available to spend.
Inspect transfers by year
A receipt can return to the donor or fund a new trust. It cannot do both.
Six-year GRAT · year 2
- Scheduled annuity
- $200,813.91
- Actually received
- $200,813.91
- Unpaid if depleted
- $0.00
- Used to fund a new trust
- $0.00
- Receipt retained by donor
- $200,813.91
- Remainder sent to beneficiaries
- $0.00
End of year: 1 active trusts. Payments are limited to available trust assets.
Rolling two-year GRAT program · year 2
- Scheduled annuity
- $836,558.82
- Actually received
- $836,558.82
- Unpaid if depleted
- $0.00
- Used to fund a new trust
- $836,558.82
- Receipt retained by donor
- $0.00
- Remainder sent to beneficiaries
- $38,246.85
End of year: 2 active trusts. Payments are limited to available trust assets.
Six-year GRAT · full annual ledger
| Year | Annuity paid | Remainder distributed | Donor assets | Beneficiary assets | Active trust assets |
|---|---|---|---|---|---|
| 1 | $200,813.91 | $0.00 | $200,813.91 | $0.00 | $879,186.09 |
| 2 | $200,813.91 | $0.00 | $417,692.94 | $0.00 | $748,707.06 |
| 3 | $200,813.91 | $0.00 | $651,922.29 | $0.00 | $607,789.71 |
| 4 | $200,813.91 | $0.00 | $904,889.99 | $0.00 | $455,598.97 |
| 5 | $200,813.91 | $0.00 | $1,178,095.10 | $0.00 | $291,232.98 |
| 6 | $200,813.91 | $113,717.70 | $1,473,156.62 | $113,717.70 | $0.00 |
Rolling two-year GRATs · full annual ledger
| Year | Annuity paid | Remainder distributed | Donor assets | Beneficiary assets | Active trust assets |
|---|---|---|---|---|---|
| 1 | $542,381.32 | $0.00 | $0.00 | $0.00 | $1,080,000.00 |
| 2 | $836,558.82 | $38,246.85 | $0.00 | $38,246.85 | $1,128,153.15 |
| 3 | $747,911.38 | $20,744.38 | $0.00 | $62,050.97 | $1,197,661.03 |
| 4 | $859,387.04 | $31,995.74 | $0.00 | $99,010.79 | $1,261,478.17 |
| 5 | $871,768.65 | $28,605.25 | $871,768.65 | $135,536.90 | $462,022.53 |
| 6 | $466,115.48 | $32,868.85 | $1,407,625.62 | $179,248.70 | $0.00 |
Each trust's funding and remaining payments
Six-year GRAT
Six-year trust · completed by year 6
Funded at start of year 1: $1,000,000.00
Maturity: end of year 6
Funding-month rate: 5.6%
- Year 1: $200,813.91 scheduled
- Year 2: $200,813.91 scheduled
- Year 3: $200,813.91 scheduled
- Year 4: $200,813.91 scheduled
- Year 5: $200,813.91 scheduled
- Year 6: $200,813.91 scheduled
Original maturity remainder: $113,717.70. Later beneficiary growth is separate.
Rolling two-year GRAT program
Two-year trust 1 · completed by year 6
Funded at start of year 1: $1,000,000.00
Maturity: end of year 2
Funding-month rate: 5.6%
- Year 1: $542,381.32 scheduled
- Year 2: $542,381.32 scheduled
Original maturity remainder: $38,246.85. Later beneficiary growth is separate.
Two-year trust 2 · completed by year 6
Funded at start of year 2: $542,381.32
Maturity: end of year 3
Funding-month rate: 5.6%
- Year 2: $294,177.50 scheduled
- Year 3: $294,177.50 scheduled
Original maturity remainder: $20,744.38. Later beneficiary growth is separate.
Two-year trust 3 · completed by year 6
Funded at start of year 3: $836,558.82
Maturity: end of year 4
Funding-month rate: 5.6%
- Year 3: $453,733.88 scheduled
- Year 4: $453,733.88 scheduled
Original maturity remainder: $31,995.74. Later beneficiary growth is separate.
Two-year trust 4 · completed by year 6
Funded at start of year 4: $747,911.38
Maturity: end of year 5
Funding-month rate: 5.6%
- Year 4: $405,653.16 scheduled
- Year 5: $405,653.16 scheduled
Original maturity remainder: $28,605.25. Later beneficiary growth is separate.
Two-year trust 5 · completed by year 6
Funded at start of year 5: $859,387.04
Maturity: end of year 6
Funding-month rate: 5.6%
- Year 5: $466,115.48 scheduled
- Year 6: $466,115.48 scheduled
Original maturity remainder: $32,868.85. Later beneficiary growth is separate.
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The fields begin with an editable $1 million example. The explanations farther down the page use that original example; they do not change when you update your comparison.
Assets and cash committed to the GRAT
Suppose a family is considering placing $1 million of an appreciating asset into a grantor retained annuity trust, or GRAT. The donor would receive scheduled annuity payments. Any remainder after those payments could pass to beneficiaries.
The choice is between one six-year trust and a six-year program of separate two-year trusts. Compare the schedules with the same starting assets, then ask how each annuity would be paid and whether the family has enough liquidity outside the GRAT.
Starting assets
$1 million, with an assumed 8% annual return in every donor, trust and beneficiary account.
Common endpoint
Six years. The rolling program starts five two-year trusts, then stops new funding so all can finish.
Funding rate
5.6%, the October 2026 §7520 rate. Repeating that rate for later trusts is hypothetical.
The illustration uses annual-end payments and excludes taxes, costs, spending, mortality and outside contributions. Those exclusions make the asset flows easier to follow; the omitted demands still need a separate review.
The annuity is paid before a remainder passes on
A GRAT gives the donor a right to stated annuity payments. The remainder is what is left after the trust completes that schedule.
Follow the first two-year trust below. It earns the assumed 8% each year, makes its required payments and distributes what remains after the second payment.
At funding
$1,000,000.00Assets enter the trust
The annuity schedule is set at funding. The 5.6% valuation rate is separate from the assumed 8% investment return.
At each year-end
$542,381.32Value returns to the donor
In year one, the trust grows to $1.08 million before the payment. It retains $537,618.68 afterward.
After the second payment
$38,246.85A remainder reaches beneficiaries
After another 8% return and the final annuity, this amount remains. No positive remainder is guaranteed.
Illustrative values at a 5.6% valuation rate and an 8% annual return, before tax and cost.
For comparison, the six-year trust’s modeled level annuity is $200,813.91. Its lower annual payment continues for longer.
The annuity is property returning under the trust agreement, not an IRS payment. It may arrive in kind rather than as spendable cash, so valuation, transfer restrictions and the family’s liquidity plan still matter.
These modeled payments target a remainder value of approximately zero at funding. That actuarial assumption does not promise a future remainder or settle gift-tax and valuation questions. Code §2702 and the actual trust terms govern the retained-interest analysis.
26 U.S.C. §2702 — Transfers of interests in trusts · 26 CFR §25.2702-3 — Qualified interests
Rolling GRATs need a year-by-year funding plan
“Rolling” describes the program, not a change to an existing trust. In this example, annuity receipts fund a new, separate two-year GRAT after years one through four. Beneficiary remainders stay with the beneficiaries and are not rolled again.
The qualified-interest regulation requires the governing instrument to prohibit additional contributions to the original GRAT. Each successor therefore needs its own funding and payment schedule.
The first annuity can fund the next GRAT
The donor receives the payment before using it to fund the next GRAT. The same value moves through each step.
SCHEDULED ANNUITY PAYMENT
$542,381.32
First year-end receipt
-
TRUST PAYMENT
Original trust
Pays the first scheduled annuity.
-
RETURN TO DONOR
Donor receives
The receipt returns to the donor before its next use.
-
NEXT GRAT
New trust
That same receipt funds a separately scheduled trust.
A receipt used for the next GRAT is no longer available for personal spending. Each new trust has its own payment schedule and funding-month rate.
After year one, the $542,381.32 receipt funds the second trust. After year two, the two active trusts return $836,558.82 in combined annuities to fund the third; the first trust’s $38,246.85 remainder goes to beneficiaries.
The process continues through year four. New funding then stops. Annuity receipts in years five and six stay with the donor, and the last trusts mature by the common six-year endpoint.
FundingYear 1Year 2Year 3Year 4Year 5Year 6
Six-year GRAT
Rolling two-year GRATs
This comparison starts new two-year trusts through year 4. They all finish by year 6. A continuing program needs a separate view of unfinished trusts.
Where the assets are after six years
| Asset location | Six-year GRAT | Rolling two-year GRATs |
|---|---|---|
| Completed beneficiary assets | $113,717.70 | $179,248.70 |
| Donor assets | $1,473,156.62 | $1,407,625.62 |
| Total family assets | $1,586,874.32 | $1,586,874.32 |
All trusts have finished in this example. Beneficiary values include growth after earlier remainders were distributed.
Rolling transfers more to beneficiaries in this illustration. Both strategies still total $1,586,874.32 because every asset location earns the same return and the example excludes tax, costs and spending. The schedule changes ownership; it does not create extra investment wealth. Different assumptions can change the comparison.
Investment timing can change the transfer
Trusts make payments along the way, so the order of investment returns matters. Consider 30%, −15%, 25%, −10%, 20% and 5%, then the same observations in reverse. An untouched $1 million account ends at $1,566,337.50 in either order.
The GRAT outcomes differ. This separate example uses a hypothetical 6% funding rate. The figures below are completed beneficiary assets after six years.
Gains arrive early
30%, −15%, 25%, −10%, 20%, 5%
- Six-year GRAT
- $129,300.91
- Rolling program
- $347,034.26
The same returns in reverse
5%, 20%, −10%, 25%, −15%, 30%
- Six-year GRAT
- $36,821.75
- Rolling program
- $160,146.87
Reversing the sequence lowers the beneficiary amount for both strategies. It does not reverse their ranking in this pair, and one pair of return paths cannot establish that either term is always better.
Later trusts face later funding rates
Each trust keeps the valuation rate set for its funding month. The six-year GRAT retains its starting rate; later trusts in a rolling program use the rates that apply when they are funded. The IRS published a 5.60% §7520 rate for October 2026. Every rate assigned to a future trust here is an assumption.
A separate stress test starts both choices at a hypothetical 6.0%, then uses 6.4%, 7.0%, 7.4% and 8.0% for later rolling trusts. With 8% annual investment returns, the six-year GRAT leaves $95,020.51 for beneficiaries and the rolling program leaves $84,594.24. Here the longer trust leads because it keeps the starting rate while new trusts reset higher.
A term comparison should test both the order of returns and the rates used for later trusts. The initial illustration alone does not support a term choice.
How the valuation rate differs from the annuity increase limit
Two rules use “120%,” but they describe different things. Code §7520 bases the valuation rate on 120% of the annual federal midterm rate, compounded annually and rounded to the nearest two-tenths of one percent.
Separately, §25.2702-3 permits a qualified annuity amount to rise to no more than 120% of the preceding year’s amount: a maximum 20% annual increase. Neither rule chooses the trust term.
Revenue Ruling 2026-19 · IRS Section 7520 interest rates · 26 U.S.C. §7520 — Valuation tables · 26 CFR §25.2702-3 — Qualified interests
The family still needs cash outside the illustration
A favorable transfer result does not establish that the family can support the schedule. List each annuity date, its expected source of cash or property, appraisal dates, professional costs and the grantor’s income-tax needs. An unknown estimate should stay “not supplied,” not become zero.
Private shares add practical constraints. The annuity does not disappear because a company pays no dividend, and a trustee note does not satisfy the qualified annuity under the regulation. Advisers need a permitted payment method, current valuation work and a plan for issuer restrictions, rights of first refusal, fractional interests and any sale needed to raise cash. Treasury’s stock-valuation regulation addresses factors that can matter when reliable quotations do not exist.
The IRS describes a GRAT as a grantor trust for federal income-tax purposes. Those tax payments are another cash demand to review alongside family spending and the costs of administering the trusts.
Grantor income-tax payments and reimbursement provisions
Revenue Ruling 2004-64 holds that a grantor’s payment of income tax attributable to a grantor trust is not an additional gift to beneficiaries. A mandatory reimbursement right can cause estate inclusion, while discretionary reimbursement alone does not. Arrangements, trustee powers, creditor law and other facts can change the result; the instrument and family facts require separate review.
26 CFR §25.2702-3 — Qualified interests · IRS Special Types of Trusts — Grantor retained annuity trust · Revenue Ruling 2004-64 · 26 CFR §25.2512-2 — Stocks and bonds
Review what happens if a term is unfinished
A six-year endpoint is useful for comparison, but plans can change before then. At an interruption date, separate completed trusts from those still paying annuities. Completed remainders and their later beneficiary-account growth are distinct from the gross assets and remaining obligations of active trusts.
If the grantor dies during an open annuity term, all or part of that trust can be included in the gross estate under §2036. The calculation depends on the remaining payment, payment frequency, death-date §7520 rate and trust value. Treasury’s estate-inclusion regulation gives the method and examples. A completed term is not, by itself, a legal conclusion that every asset is excluded from the estate.
Income tax, basis and generation-skipping transfer tax need separate analysis. Property received by gift generally begins with the carryover-basis rules in Code §1015; estate inclusion can change the basis inquiry. The comparison below does not turn those questions into a single projected tax saving.
This article and its interactive are educational illustrations. The figures use deterministic assumptions, retain full precision until display and exclude taxes and costs. They do not validate a trust, predict an outcome or recommend a term. Legal and tax professionals should review the public language, instrument assumptions and calculations before publication or reliance.
26 CFR §20.2036-1 — Transfers with retained life estate · 26 U.S.C. §1015 — Basis of property acquired by gifts and transfers in trust
SOURCES & METHOD
Evidence behind the comparison
This review illustrates annual-end payments, synthetic investment returns and separate trust funding. It does not calculate an actual taxable gift, estate inclusion, tax saving or suitable transfer amount. Costs, tax basis, liquidity, death, instrument terms and state law require separate review.
- Revenue Ruling 2026-19
October 2026 federal rates and the published 5.60% §7520 rate.
- IRS Section 7520 interest rates
Official monthly rate table and formula summary; recheck for the actual funding month.
- 26 U.S.C. §7520 — Valuation tables
Statutory valuation-rate formula and rounding rule.
- 26 U.S.C. §2702 — Transfers of interests in trusts
Family trust transfers, qualified retained interests and valuation framework.
- 26 CFR §25.2702-3 — Qualified interests
Qualified annuity, payment timing, annual-increase ceiling, no-additions rule and no-note rule.
- 26 CFR §20.2036-1 — Transfers with retained life estate
Method and examples for all-or-part estate inclusion when a retained annuity remains.
- IRS Special Types of Trusts — Grantor retained annuity trust
IRS explanatory description of a GRAT as a grantor trust for federal tax purposes.
- Revenue Ruling 2004-64
Grantor-trust income-tax payments and reimbursement provisions.
- 26 U.S.C. §1015 — Basis of property acquired by gifts and transfers in trust
General carryover-basis and related gift-tax adjustment rules.
- 26 CFR §25.2512-2 — Stocks and bonds
Valuation considerations when reliable market quotations are unavailable.
Calculation version grat-educational-model/1.0.1. Amounts retain calculation precision internally and are rounded only for display. Hypothetical successor rates are not forecasts.
Altar Rock · Advice for your family
How would a GRAT fit the wealth you need to keep?
The comparison shows how payments change when you adjust the assumptions. Andrew Barnes and the Altar Rock team can review those commitments against your lifetime spending and wealth-transfer goals, alongside your tax and legal advisers.
Tell us what you are considering and what you need help assessing. You choose what to share.
Altar Rock advisory team
- The wealth and cash flow your family needs to retain
- The funding commitments behind each schedule
- How the transfer fits your intentions for future generations
These guides and tools are educational examples. Advice for your family requires a review of your circumstances with the appropriate investment, tax and legal advisers.