If a grantor of a GRAT dies during the trust term, what happens to the trust's value?

When a grantor of a Grantor Retained Annuity Trust (GRAT) dies during the trust term, the entire value of the trust is included in the gross estate. This is because the grantor retained an interest in the trust, specifically the right to receive annuity payments for a certain term.

Under estate tax rules, if a grantor passes away while an interest is retained in a trust, the assets of that trust are included in the grantor's gross estate at the time of their death. This provision safeguards against circumvention of estate taxes by ensuring that assets from which the decedent retained benefits are accounted for in their estate valuation.

In contrast, distributions made from the trust or any decrease in value due to those distributions do not impact the inclusion of the trust's total value. Essentially, the trust remains fully in play for tax considerations until the grantor's term of interest concludes, or they pass away, which makes it subject to estate tax calculation.