A Grantor Retained Annuity Trust (“GRAT”) is a Trust for a fixed term or the life of the Grantor, where the Grantor receives an annual or more frequent annuity payment from the Trust and at the end of the Trust, the remainder passes to the beneficiary(ies) of the Trust as a gift. There is an assessed value for gift tax purposes determined when the GRAT is set up, which is calculated according to IRS regulations. If the value of the assets held in the GRAT increase in value at a rate in excess of the modest rate assumed by the interest rate set by the IRS, then what is actually transferred to the beneficiaries of the GRAT will be larger than the gift reported for gift tax purposes, thus the appreciation has passed tax free.