Ann: Lithium Tenements and Prospects - Technical Review, page-90

Hi E
Havn't had time to interpret it properly yet but this could be what you are after mate. Good to have you on board E
Take care
Mule


A Grantor Retained Annuity Trust, or GRAT for short, is a special type of irrevocable trust that allows the Trustmaker/Grantor to gamble against the odds and, if the Trustmaker/Grantor plays their cards right, then a significant amount of wealth can be moved down to the next generation for virtually no estate or gift tax dollars.

How Does a GRAT Work?
Here is a general overview of how a GRAT works:

1. The Grantor/Trustmaker transfers specific assets into the name of the GRAT and, as the name suggests, retains the right to receive an annual annuity payment for a certain number of years. When the term of the GRAT ends, what is left in the GRAT is distributed to the trust beneficiaries (children or other beneficiaries of the Grantor's/Trustmaker's choice).

1. The amount of the annuity payment that is required to be paid to the Grantor/Trustmaker during the term of the GRAT is calculated by using an interest rate that is determined monthly by the IRS called the section 7520 rate. The section 7520 rate for December 2013 is 2.0% and will increase to 2.2% for January 2014, which is still very low indeed. For a chart showing historical and current section 7520 rates, refer to Key Rates / Valuation on the Leimberg.com website.
2. The Grantor/Trustmaker can set the annuity payment so that it will be exactly equal to the section 7520 interest rate, meaning that theoretically all of the assets that have been transferred into the GRAT will be returned to the Grantor/Trustmaker in the form of the annuity payments and nothing will be left for distribution to the children or other beneficiaries when the GRAT ends. While ordinarily the transfer of assets owned by someone into an irrevocable trust for the benefit of someone else would be deemed a gift for federal gift tax purposes, with a GRAT since theoretically all of the assets transferred in could come back to the Grantor/Trustmaker, the value of the gift to the beneficiaries of the GRAT will be at or close to $0. This is called a “zeroed-out GRAT.”

1. So why would someone do this - set up a trust for the benefit of someone else but get all of the assets back in the form of annuity payments? This is where gambling against the odds comes into the picture - because the Grantor/Trustmaker is really betting on the fact that the assets transferred into the GRAT will appreciate in value above and beyond the section 7520 interest rate, so while the Grantor/Trustmaker will receive the annuity payments, the beneficiaries of the GRAT will receive the underlying GRAT assets at their value that has appreciated over and above the section 7520 rate