A $1M Zeroed-Out GRAT Can Pass $163K to Heirs With Zero Gift Tax

A strategy that can’t lose on gift tax — only on wealth transfer

We ran a $1,000,000 asset through the calculator at the August 2026 §7520 rate of 5.20%, a 2-year term, assuming 15% actual growth: the zeroed-out annuity pays $539,329/year back to the grantor ($1,078,659 total), and $162,942 remains in the trust at the end of the term — passed to heirs completely free of gift tax. Drop the assumed growth to 3% (below the §7520 rate) instead, and the remainder is exactly $0 — the trust simply returns everything to the grantor through the annuity, with no gift tax ever having been owed either way.

How the math works

The zeroed-out annuity payment solves PV(payment, §7520 rate, term) = assetValue. Each year, the trust balance grows at the assumed actual rate, then the fixed annuity is subtracted; whatever remains after the final payment is the tax-free remainder.

What this tool doesn’t model: a single fixed growth rate is a simplification — real GRATs are usually funded with volatile, concentrated positions precisely because volatility (not just average return) increases the odds SOME years beat the §7520 rate. It also doesn’t model “rolling” a series of short 2-year GRATs (the common technique to limit mortality risk), or the grantor dying mid-term, which generally pulls the remaining trust value back into the taxable estate.

Math runs locally. Inputs never leave your browser. Source on github.

Where this doesn’t apply

• The grantor might not survive the annuity term. Dying mid-term generally pulls the remaining trust value back into the taxable estate — short, rolling 2-year terms are the standard way to limit this exposure.
• The asset is low-volatility and unlikely to beat the §7520 rate. GRATs work best with assets that have a real chance of significant outperformance — a concentrated stock position, pre-IPO equity, or similar.
• You need the asset’s income or liquidity during the term. The annuity payment schedule is fixed at funding — it doesn’t flex for the grantor’s changing cash needs.
• You’re trying to shelter appreciation for someone other than a direct heir. Generation-skipping transfers through a GRAT have additional GST tax complications not modeled here.

What to actually do

1. Get the actual current-month §7520 rate from the IRS rather than assuming a fixed figure.
2. Consider a short, rolling 2-year GRAT structure to limit mortality risk rather than one long-term GRAT.
3. Fund the GRAT with a volatile, appreciation-oriented asset — the strategy’s value comes from upside potential, not steady income.
4. Work with an estate attorney to ensure the trust qualifies under IRC §2702’s strict requirements.
5. Compare against a SLAT if the goal is broader family wealth transfer rather than a specific asset’s appreciation.