The United States Internal Revenue Service has a number of regulations governing how the remaining value of the trust at the end of the term (or at the death of the grantor) is taxed.
The gift value is set equal to the initial contribution to the GRAT plus a theoretical interest earned on the principal, minus the annuity payments that would be made through the end of the term.
To realize a tax benefit, the sum of the scheduled annuity payments of a GRAT is set to be about equal to the principal plus theoretical interest.
A ProPublica report detailed how several ultra-wealthy families exploited the GRAT to avoided potentially billions in estate taxes.
[6] Grantor-retained annuity trusts were used by controversial sex offender Jeffrey Epstein to help his wealthy clients avoid taxes.