A large equity grant, a public offering, or years of holding shares with a low cost basis can leave a big share of your net worth tied to one company, creating concentration that can carry real tax exposure and portfolio risk. High earners are particularly susceptible after a liquidity event, a promotion that comes with more equity compensation, or an inheritance of appreciated shares.
A grantor retained annuity trust, known as a GRAT, is one tool that can address significant concentration while offering estate planning benefits. Below, we walk through how a GRAT works, how it compares with other strategies, and questions that can help guide a conversation with your financial advisor.
How a GRAT Can Address a Concentrated Position
A GRAT is an irrevocable trust funded with an asset expected to grow, such as a concentrated stock position. The grantor receives annuity payments back over a set term, calculated using the IRS Section 7520 rate for the month the trust is funded. As of August 2026, that rate sits at 5.20 percent. Any growth in the trust above that rate can pass to beneficiaries with little or no gift tax, in a structure often called a “zeroed-out” GRAT.
GRATs can work well for a stock expected to see near-term appreciation, since the strategy shifts growth rather than current value. Some advisors use rolling two-year GRATs on volatile positions, restarting the trust if the stock drops so a new term can capture the next upswing. A GRAT also carries a mortality condition. If the grantor does not survive the trust term, the assets generally return to the grantor’s estate, and the strategy does not achieve its transfer goal.
GRATs vs. Other Estate Planning Strategies
When considering a concentrated position, advisors often weigh several strategies side by side, since each one impacts risk, taxes, and timing in a different way. A GRAT is one tool that can address concentration while potentially offering estate planning benefits. Comparing it against other approaches can help clarify which structure may fit a given position, timeline, and set of goals.
GRAT vs. IDGT Installment Sale
In an installment sale to an intentionally defective grantor trust, or IDGT, the grantor sells the stock to an irrevocable trust in exchange for a promissory note that pays interest at the IRS Applicable Federal Rate, generally lower than the Section 7520 rate. Because the trust is treated as owned by the grantor for income tax purposes, the sale does not trigger capital gains at the time of the transaction.
The IDGT strategy moves the full current value of the position out of the estate, not just the growth above a hurdle rate, which can make it a fit for a position where the grantor wants to shift both current value and future appreciation. A GRAT, by contrast, only shifts appreciation above the Section 7520 rate, and unlike an IDGT sale, the GRAT assets can come back into the estate if the grantor does not survive the term. Advisors sometimes use both strategies together on different portions of a concentrated position, depending on growth expectations, remaining lifetime exemption, and the client’s comfort with each structure’s mechanics.
GRAT vs. Charitable Remainder Trust
For clients with charitable intent, a charitable remainder trust, or CRT, is another potential option for addressing a concentrated position.
Funding a CRT with concentrated stock can allow the donor to defer capital gains, receive an income stream from the trust, and claim a charitable income tax deduction. The remainder passes to a named charity at the end of the trust term. A CRT does not carry the same growth-hurdle mechanics as a GRAT, so it may be a fit for clients weighing income needs and philanthropic goals alongside tax efficiency, rather than clients focused primarily on transferring wealth to heirs.
Additional Ways to Address a Concentrated Position
Beyond a GRAT, IDGT, or CRT, there are a few other approaches that may be worth discussing with an advisor:
- Annual exclusion gifting. In 2026, an individual can gift up to $19,000 per recipient without touching lifetime gift tax exemption, which can be a slower, lower-complexity way to reduce a position over time.
- Direct diversification. Selling shares over time, sometimes through a structured trading plan, can reduce concentration risk without the complexity of a trust structure. However, doing so may trigger capital gains in the year of sale.
- Exchange funds. Some investors contribute concentrated stock to a pooled fund alongside other investors holding different concentrated positions, in exchange for a diversified interest in the fund. This strategy can defer capital gains while reducing single-stock risk, though exchange funds generally come with lockup periods and eligibility requirements.
- Holding for a step-up in basis. For an estate that falls under the federal exemption, currently $15 million per individual and $30 million per married couple in 2026, holding an appreciated position until death may allow heirs to receive a step-up in cost basis.
Questions to Ask Your Advisor
If you’re holding a concentrated position, consider raising the following questions with your financial advisor:
- How much of my position’s value reflects past growth versus growth I expect going forward?
- How much of my lifetime gift and estate tax exemption do I have left?
- How does my time horizon line up with a GRAT term or an installment note?
- How would my overall estate be affected if this position drops in value during the strategy’s term?
- Who else do I need to bring in, such as a tax advisor or estate planning attorney, before I move forward?
For addressing concentrated stock, the mix of GRATs, IDGTs, CRTs, gifting, and diversification that fits one family’s goals may look different for another. We believe the starting point is a clear picture of the position, the tax picture, and what the client wants the wealth to do next. From there, an advisor can help model a few scenarios and coordinate with legal and tax counsel on the structure that may fit best.
