GRAT Calculator — Zeroed-Out Annuity and Remainder

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Size a grantor retained annuity trust at the Section 7520 rate for the month you fund it: the zeroed-out annuity, the taxable gift, level or 20%-increasing payments, and what passes to your heirs.

By Konstantin Iakovlev · Updated September 2026 · Source: IRC §2702; Treas. Reg. 25.2702-3 and 20.2031-7; IRS Section 7520 interest rates

$
Annuity
%

Taxable gift

$0

Left for beneficiaries at 8% growth

$38,247

Hurdle rate (Section 7520)

5.6%

How the gift is valued

Value transferred$1,000,000.00
First-year annuity back to you$542,381.32
Present value of the annuity at 5.6%$1,000,000.00
Taxable gift (value minus annuity)$0.00
Paid back to you over 2 years$1,084,762.65
Remainder to beneficiaries$38,246.85
Estate tax avoided at 40%, if your estate is above the exemption$15,298.74

Year by year at 8% growth

YearStart of yearGrowthAnnuity to youEnd of year
1$1,000,000$80,000$542,381$537,619
2$537,619$43,009$542,381$38,247

If you die during the term, the trust is pulled back into your estate up to the amount that would produce the annuity at the Section 7520 rate, about $1,000,000 with a level annuity (Reg. 20.2036-1(c)(2)). That is why many people use short, rolling 2-year GRATs. Factors are computed exactly, so hand work with the 4-decimal IRS tables can differ by a few dollars.

A zeroed-out GRAT is still reported on Form 709. The 2026 estate and gift tax exemption is $15 million per person (One Big Beautiful Bill Act); a GRAT lets growth above the hurdle rate pass without using any of it.

Use the GRAT Calculator — Zeroed-Out Annuity and Remainder above to calculate your results. Enter your values and see instant results — all calculations run in your browser.

Disclaimer: This calculator is for informational purposes only and does not constitute tax, financial, or legal advice. Results are estimates based on the information you provide and current rates. Always consult a qualified tax professional or financial advisor for advice specific to your situation.

How It Works

A grantor retained annuity trust (GRAT) moves investment growth to your heirs with little or no gift tax. You put assets in the trust and take back a fixed annuity for a set number of years; whatever is left at the end goes to the beneficiaries. The taxable gift is the value you put in minus the present value of the annuity you keep, discounted at the IRS Section 7520 rate for the month you fund the trust.

Most GRATs are "zeroed out": the annuity is sized so its present value equals the whole contribution and the gift is about zero. The Section 7520 rate then works as a hurdle. If the assets earn exactly that rate, the annuity uses up the trust; anything they earn above it passes to the beneficiaries free of gift tax. Each payment may be up to 120% of the one before, and a rising annuity leaves more in the trust early on to compound.

A GRAT must use the rate for the month of the transfer; the option to use either of the two previous months applies only when part of the transfer goes to charity. If you die during the term, the trust is pulled back into your estate, which is why short two-year GRATs, rolled into new ones as they end, are common. A zeroed-out GRAT is still reported on Form 709, and the 2026 estate and gift tax exemption of $15 million per person is not used.

Example: $1 Million Two-Year GRAT at 5.6%

  1. 1 Input: $1,000,000 of stock placed in a two-year zeroed-out GRAT in October 2026, when the Section 7520 rate is 5.6%.
  2. 2 Annuity: the two-year factor at 5.6% is 1/1.056 + 1/1.056² = 1.843722, so each annual payment is $1,000,000 ÷ 1.843722 = $542,381.32 and the taxable gift is about $0.
  3. 3 Growth at 8%: year 1 ends at $1,080,000 − $542,381.32 = $537,618.68; year 2 adds $43,009.49 and pays $542,381.32 more.
  4. 4 Result: $38,246.85 passes to the beneficiaries without using any exemption, which would cost $15,298.74 of estate tax at 40% if it had stayed in a taxable estate.

Source: IRC §2702; Treas. Reg. 25.2702-3 and 20.2031-7; IRS Section 7520 interest rates · Last updated: September 2026

Frequently Asked Questions

What is a zeroed-out GRAT?
A GRAT whose annuity is set so its present value at the Section 7520 rate equals the value put in, leaving a taxable gift of about zero. The beneficiaries receive only what the assets earn above that rate over the term.
Which Section 7520 rate does a GRAT use?
The rate for the month the trust is funded. The option to use either of the two previous months applies only when part of the transfer qualifies for a charitable deduction, so it is not available for an ordinary GRAT.
What happens if I die during the GRAT term?
The trust is included in your estate up to the amount needed to produce the annuity at the Section 7520 rate at death, which usually means most or all of it. Short terms, such as rolling two-year GRATs, reduce that risk.
Can the GRAT annuity increase each year?
Yes. Each payment may be up to 120% of the previous year's; any amount above that is not a qualified interest and is valued at zero. An increasing annuity leaves more in the trust in the early years to grow.

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