hard · Certified Financial Planner General Principles
An investor is considering the use of a zeroed-out Grantor Retained Annuity Trust (GRAT) to transfer wealth to heirs.  Based on the mechanics shown, what is the primary risk of this strategy if the grantor dies during the 5-year term?
- The remainder beneficiaries must pay an immediate generation-skipping transfer tax (GSTT).
- The entire value of the trust is pulled back into the grantor's gross estate under Section 2036.
- The annuity payments are retroactively taxed at a penalty rate of 40%.
- The grantor's remaining lifetime exclusion is permanently reduced by the full $5,000,000 transfer value.
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