Grantor Retained Annuity Trusts (GRATs) in Australia: 2025 Guide

In 2025, Australian families are seeking smarter, more flexible ways to manage and transfer wealth. Grantor Retained Annuity Trusts (GRATs), a popular estate planning tool in the US, are gaining attention down under—especially among high-net-worth individuals and business owners keen to pass on assets with minimal tax impact.

What is a Grantor Retained Annuity Trust (GRAT)?

A Grantor Retained Annuity Trust (GRAT) is a type of irrevocable trust that allows the grantor (the person establishing the trust) to transfer assets while retaining the right to receive a fixed annual payment (the annuity) for a set period. After this term, any remaining assets pass to beneficiaries—often children or grandchildren—potentially free of additional estate or gift taxes.

While GRATs are an established part of US estate planning, they are being discussed more frequently in Australia as families look for advanced wealth transfer strategies. Australian tax law does not have a direct GRAT equivalent, but recent policy debates and cross-jurisdictional planning trends are bringing these structures into the spotlight.

Why are GRATs Relevant in Australia in 2025?

• Rising Intergenerational Wealth Transfers: With over $3.5 trillion expected to pass between Australian generations over the next two decades, the need for tax-efficient strategies is more urgent than ever.

• Globalisation and Cross-Border Families: Many Australian families have assets or family members in the US or UK, where GRAT-style trusts are commonplace. This has increased demand for local solutions or hybrid structures.

• 2025 Policy Developments: The Australian Treasury’s ongoing review of trust taxation and the potential for estate tax reform have sparked renewed interest in sophisticated trust arrangements. While there’s no Australian GRAT regime, financial advisers are exploring similar approaches using discretionary trusts, family trusts, and testamentary trusts.

How Does a GRAT Work? (And Can You Use One in Australia?)

Here’s a simplified breakdown of a typical GRAT arrangement, as seen in the US:

• The grantor places assets (shares, real estate, business interests) into the GRAT.

• The trust pays the grantor an annual annuity for a fixed term (usually 2-10 years), calculated at a government-set interest rate (the Section 7520 rate in the US).

• If the assets grow faster than the set rate, the excess passes to beneficiaries with minimal (or zero) gift tax.

• If the grantor dies during the term, the assets revert to their estate, and the tax benefits are lost.

In Australia, while direct GRATs aren’t available, similar effects can sometimes be achieved with:

• Family Trusts: Used for income splitting, asset protection, and flexible distributions.

• Testamentary Trusts: Activated on death, providing tax concessions for minor beneficiaries and asset protection.

• Hybrid Trusts: Combining fixed and discretionary elements to mimic some GRAT benefits.

Recent legal commentary in Australia has highlighted the potential for future legislative changes—especially as the federal government considers reforms to trust taxation and the possible introduction of an inheritance tax in coming years. Australian advisers are watching these developments closely, as they could open the door to more GRAT-like structures or require a rethink of current trust strategies.

Real-World Example: A Cross-Border Family Estate Plan

Consider the Smith family, who have business interests in both Sydney and California. The family matriarch wants to transfer part of the US business to her children but minimise US gift tax exposure. With a US-based GRAT, she retains income from the business for 5 years, after which any appreciation above the IRS’s benchmark rate passes to her children with little or no gift tax. Meanwhile, her Australian assets are managed through a family trust, allowing for income streaming and asset protection.

This scenario is becoming increasingly common as Australian families diversify globally. In 2025, cross-border estate planning is no longer just for the ultra-wealthy; it’s a mainstream concern for professionals, entrepreneurs, and retirees alike.

Key Considerations and 2025 Trends

• Regulatory Watch: The Australian government’s 2025 trust reform consultations could affect how local trusts are taxed—potentially impacting the attractiveness of GRAT-style arrangements.

• Interest Rate Movements: With rates expected to stabilise in 2025, the potential tax benefits of asset appreciation above benchmark rates remain a key incentive.

• Professional Advice Essential: With cross-jurisdictional rules and evolving regulations, specialist legal and tax advice is crucial for structuring effective estate plans.

Conclusion: Is a GRAT Right for Your Family?

While pure GRATs aren’t yet available under Australian law, the principles behind them—locking in asset growth and reducing intergenerational tax—are highly relevant. As 2025 brings regulatory uncertainty and a wave of wealth transfer, Australian families should explore the full range of trust strategies, stay informed on policy developments, and work with experts to future-proof their estate plans.