As interest rates rise and market volatility lingers, many estate planning strategies that once thrived in a low-rate environment are being prematurely discarded. But one tool should not be tossed aside: The grantor retained annuity trust remains a valuable and underused strategy — even with higher interest rates.
Over the past two decades, some of the wealthiest families in America have leveraged GRATs to transfer wealth to the next generation with minimal or no gift tax. The Walton family reportedly used rolling GRATs to shift billions in Walmart stock, while the Koch family has applied similar methods in closely held entities. Bill Gates and Warren Buffett, although known for their philanthropic giving, have also engaged in GRAT planning to balance family legacy and charitable goals.
These examples illustrate that GRATs are not theoretical tools — they are tested strategies used at the highest levels of private wealth planning.
Often misunderstood or dismissed, the GRAT deserves renewed attention for its proven ability to deliver significant tax-efficient transfers. This renewed perspective is best appreciated by first understanding the structure of a GRAT and then examining how rolling or chain GRATs can magnify its benefits in today’s conditions.
GRATs — The Basics
A GRAT allows a grantor to contribute appreciating assets into a trust while retaining the right to receive an annuity payment for a fixed term — typically two to five years. The GRAT is structured so that the present value of the annuity stream (calculated using the Section 7520 rate) offsets the value of the transferred property. If the assets appreciate faster than the 7520 hurdle rate, the excess passes to beneficiaries without gift tax.
GRATs are often designed as zeroed-out trusts to avoid the use of lifetime exemption and minimize gift-tax exposure.
When structured as a series of rolling short-term GRATs — commonly called a "GRAT chain" — this technique can repeatedly extract appreciation from volatile or growth-oriented assets without locking in a long-term commitment. For example, a family contributing $10 million in stock to a two-year GRAT could see $1 million in excess appreciation pass to heirs gift-tax free if the investment grows at 10% annually while the 7520 rate is 5%. If this GRAT is replicated every year for a decade, the cumulative wealth transfer could far exceed a single long-term GRAT, while providing annual flexibility and risk management.
The Why Behind GRAT Chains
It is true that rising interest rates increase the 7520 rate, making it harder for a GRAT to outperform the hurdle and transfer wealth tax-free. But this oversimplifies the opportunity. GRAT chains, particularly two-year rolling GRATs, offer several key advantages even when rates are higher.
First, short-term volatility is still an ally. GRATs are designed to capitalize on short bursts of outperformance. Many UHNW families hold concentrated equity positions, private investments nearing inflection or alternative assets with episodic value spikes. These assets don’t need consistent returns — they need a window of outsized growth, which a rolling GRAT can trap repeatedly.
Second, GRATs continue to lock in high returns with minimal gift-tax risk. Because GRATs are typically structured as zeroed-out — meaning the present value of the retained annuity equals the value of the transferred property — there is no taxable gift even in a high-rate environment. This makes GRATs an expressly low-risk estate planning strategy when exemption preservation is a priority. For families who have already used much of their lifetime gift tax exemption, the ability to continue transferring wealth with no additional exemption use is particularly valuable.
Third, GRAT chains hedge against market uncertainty. By repeating GRATs annually or semi-annually, families create multiple entry points into the market, spreading the risk of underperformance over time. Even if a few GRATs underperform, the others that do beat the hurdle rate transfer value with no tax cost. In this way, GRAT chains become a low-basis asset drip machine, steadily moving appreciation out of the estate. The compounding effect of multiple successful short-term GRATs can rival or even outperform longer-term trust strategies, particularly when paired with volatility-sensitive assets.
Fourth, rising rates can ironically enhance GRAT outcomes in certain cases. As interest rates increase, the Internal Revenue Service’s actuarial assumptions reduce the value of the retained interest slightly. This may increase the leverage of a successful GRAT, especially when the growth of the contributed asset is expected to significantly outpace the higher hurdle rate. Moreover, the higher hurdle has a psychological benefit, encouraging more rigorous asset selection and modeling. This, in turn, leads to better structuring and execution.
The Role of Advisors
To help UHNW families succeed with GRATs in the current climate, advisors should focus on several tactical levers that drive success. One important consideration is structure selection: Short-term GRATs, particularly two-year models, offer flexibility and responsiveness to market and rate shifts. Another is the use of chaining strategies — recycling annuity payments from maturing GRATs into new ones builds momentum in wealth transfer and captures value across time.
Asset profiling is also key: The ideal GRAT candidates are assets with high upside potential and controlled downside. In addition, execution precision cannot be overlooked. GRATs involving complex or illiquid assets require exact legal and tax coordination, and even small missteps can undermine their benefits. Finally, projection modeling is essential. The 7520 rate is just one variable — asset behavior and timing can have an even greater impact. Even at a 5% hurdle rate, a well-modeled GRAT may present a compelling estate tax tradeoff.
While the estate planning community often shifts attention to strategies like spousal lifetime access trusts, dynasty trusts or valuation freezes in higher-rate environments, GRATs — especially in short-term, rolling form — should not be overlooked. For UHNW families with appreciating or volatile assets, GRAT chains remain a low-risk, high-leverage strategy to transfer wealth with tax efficiency and tactical flexibility. In a world where interest rates are no longer near zero, GRATs still deliver — just on slightly different terms.
Advisors serving UHNW families should revisit GRATs not as outdated relics of low-rate environments but as dynamic vehicles for modern estate planning. Families with concentrated equity, alternative assets or upcoming liquidity events should consider GRAT chains as part of a proactive, tax-efficient wealth transfer plan.
Jeff Getty is chief tax strategist at Callan Family Office, overseeing firm-wide research and strategy on income, transfer and international tax issues for ultra-high-net-worth families, closely held businesses and private investment firms.
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