GRAT Zeroed Out Calculator 2026
A Grantor Retained Annuity Trust (GRAT) lets you transfer asset appreciation to heirs gift-tax-free. A "zeroed-out" or Walton GRAT sets the annuity so the IRS-valued gift equals zero — only growth above the §7520 rate passes to remainder beneficiaries.
| Asset funded into GRAT | — |
| GRAT term | — |
| §7520 hurdle rate | — |
| Annuity factor (ordinary) | — |
| Required annual annuity payment | — |
| Total annuity returned to grantor | — |
| Projected GRAT corpus at term end | — |
| Taxable gift (zeroed-out target $0) | — |
| Remainder to beneficiaries (gift-tax-free) | — |
A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust under IRC §2702 where the grantor transfers assets, retains a qualified annuity payment for a fixed term, and the remainder passes to chosen beneficiaries — usually children — when the term ends. If structured as a "zeroed-out" GRAT (the Walton method), the present value of retained annuity payments equals the gift, producing a near-zero taxable gift. All asset growth above the §7520 hurdle rate transfers to heirs free of gift and estate tax. Last updated May 2026.
How A Zeroed-Out GRAT Works
The IRS treats the gift as the asset value minus the present value of the grantor's retained annuity. By solving for an annuity amount whose PV equals the asset value, the gift is "zeroed out" — no gift tax exemption is used. If the asset earns more than the §7520 rate (a monthly IRS interest rate, 5.0%–5.4% range in May 2026), the excess accumulates inside the GRAT and passes to remainder beneficiaries. If the asset only earns the §7520 rate, the entire corpus is returned to the grantor and the GRAT is harmless except for legal fees.
Why The Walton Case Made GRATs Powerful
In Walton v. Commissioner (115 T.C. 589, 2000), the Tax Court held that the retained annuity could include payments that continued to the grantor's estate if death occurred during the term. This let attorneys structure 100% zeroed-out GRATs without using any lifetime gift-tax exemption. The IRS acquiesced in 2005 (Rev. Proc. 2005-24 + final regs at Reg §25.2702-3(e), Ex. 5). Today, "Walton GRATs" are the standard estate-planning vehicle for transferring concentrated, appreciating positions — pre-IPO stock, growth equity, real estate at low §7520 — to the next generation without burning the $13.99M lifetime exemption.
Rolling Short-Term GRATs vs Long-Term
Most advisors recommend a series of 2-year rolling GRATs over single 10-year terms. Reason: mortality risk. If the grantor dies during the GRAT term, the entire asset is pulled back into the taxable estate under IRC §2036, defeating the strategy. Two-year terms minimize this risk. Rolling GRATs also "lock in" gains as each tranche matures — a volatile asset that doubles in year one but crashes back in year four locks in the gain through the year-2 GRAT remainder before the crash. The 2-year GRAT is sometimes restricted in proposed legislation (Greenbook proposals) but remains valid under current law (May 2026).
When A GRAT Fails Or Works
A GRAT fails (returns nothing to heirs) if the asset underperforms the §7520 rate — but the grantor is whole because they receive the annuity back. A GRAT works best when funded with assets expected to outperform the §7520 rate sharply: pre-IPO stock, illiquid LP interests with valuation discounts (often 25%-40% below NAV), founder shares before a liquidity event. The asset must be transferred at IRS-defensible fair market value — use a qualified appraiser. The annuity must be paid in cash or in-kind property at FMV — paying with depreciated stock is allowed and is part of the leverage. Always coordinate with an estate-planning attorney and CPA before funding.
Sources: IRC §2702 + §7520, Reg §25.2702-3, Walton v. Commissioner 115 T.C. 589 (2000), Rev. Proc. 2005-24, IRS May 2026 §7520 rate table. Educational only — not tax advice.