Grantor Retained Annuity Trust (GRAT): Data Input Fields

[Kathleen Reynolds]

#4798

Enter the appropriate values into the data input fields for this calculation model.

• Transfer Date: Enter 1 to 12 to indicate the month for the transfer date and then enter the year of the transfer (mm/yyyy). See Transition Period Notes.
• §7520 Rate: The program automatically displays three allowable 120% Midterm Applicable Federal Interest Rates (the current month and two preceding months) and places the rate that is most favorable in this input. You can override the program’s value by entering another rate. In which case, the phrase “Invalid §7520 Rate” appears. In some cases, 30% will appear as a rate. Thirty percent is the default value that appears when there is not a current AFR available for the chosen month. Download or manually update your AFR table. Check our web site at brentmark.com for an updated list of AFR Rates.
• Trust Type: Select Life, Term or Shorter.
• Grantor’s Age: This data input field is only used when Life or Shorter is chosen as the Calculation Type. Use a value from 0 to 109 to indicate the age of the person whose life is being used to measure the term of the trust. Enter the age using the birth date which is nearest to the transfer date.
• Term of Trust: Enter the number of years the trust will provide income to the grantor.
• Number of Payments: The program calculates the number of payments based on the term and the payment period. If you would like to have a trust that makes additional payments (beyond the normal term), use this input field to indicate the total number of payments to be made. For example, if you have a trust making quarterly payments for 10 years, this data field would default to 40. If you wished to make payments for 10 years and 1 quarter, you would change the value to 41.
• Principal: Enter the fair market value of the assets placed in the trust.
• Percentage Payout: Enter the projected payout (percentage) that should go to the beneficiary during the life of the trust.
• Payment Period: Select the payment schedule that should be followed for each year (Annual, Semiannual, Quarterly, Monthly, and Weekly).
• Payment Timing: Select Begin or End to indicate when the payment should be made for the selected payment period. This helps to determine what payout frequency factor is used in the calculation.
• Income Earned by Trust: Enter the projected income earned by the trust (percentage). This value is only used for the Economic Schedule.
• Annual Growth of Principal: Enter the projected growth rate (percentage) for the principal. This does not affect the Taxable Gift Value. This value is only used for the Economic Schedule.
• Exhaustion Method: Select the IRS Method or the Illustrated method for the Exhaustion Test.
• Optimize Payout: Click this button to have the program calculate a payout rate that results in a taxable gift under $1. See: Optimizing for Term and Optimizing for Shorter or Life.
• With Reversion? Enter whether or not the assets should revert to the grantor’s estate in the event of the grantor’s death during the term of the trust. Yes is the most common entry. Trusts which have terms based solely on life expectancy do not include a reversion.
• Varying Annuity Payments Answer Yes, if the payouts will vary from year to year. This action will activate the Edit Payout Rates button. Click the button and and change the payout rates.
• §2702 Applies? Answer Yes to apply §2702. Typically, the §2702 rules apply when both of these apply:
  • The transfer is to or for the benefit of a member of the transferor’s family.
  • The interest in the trust is retained by the transferor or applicable family member.

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IMPORTANT NOTE: Mortality table 2010CM was included in version 2022.10 of the software. Table 2010CM reflects longer life expectancies than table 2000CM, and will generally result in life interests worth more, while remainder interests worth less. Once finalized, the new 2010CM table will go in effect on the first day of the first month after regulations have been finalized. If you have a prior version of the software, it is advised to update to the latest version before the transition period ends (see below).

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