Nov 1, 2006 12:00 PM, By Edward M. Manigault and Milford B. Hatcher, Jr., partners, Jones Day, Atlanta

By: By Edward M. Manigault and Milford B. Hatcher, Jr., partners, Jones Day, Atlanta

Although the grantor retained annuity trust (GRAT) is an excellent estate-planning technique, it can be complicated to create, depending upon the client and assets involved. Hard-to-move assets can mean problems. Questions about when the GRAT is created impact annuity payments. Clients can drag their feet, then suddenly be impatient for the GRAT, causing a terrible time crunch. One handy tool to help with such difficulties is the “revocable GRAT.” It also can help advisors plan now for a client who may be incapacitated later. And it might permit settlors to grant to a GRAT an option on property.

So what exactly is a revocable GRAT? Simply put, it's a gift that is incomplete so long as the grantor can revoke it. During the revocability period, the trust is not a full-fledged GRAT.¹ When the grantor is ready to make the GRAT operative, steps are taken to make the trust irrevocable, and thus become an actual GRAT. Why bother going through these machinations? Why bother with a revocable GRAT at all? There can be significant advantages.

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