A more thorough explanation:

A Grantor-Retained Unitrust (GRUT) is a type of trust that individuals can set up to reduce taxes on their estate. It is an irrevocable trust that pays taxes at the outset and lasts for a limited period of time. The grantor receives annuity payments based on a percentage of the fair market value of the trust assets, as determined by the Internal Revenue Service (IRS) regulations. At the end of the trust's lifetime, the assets are passed to the beneficiaries without estate or gift taxes.

For example, let's say John sets up a GRUT with $1 million in assets and a 5% annuity rate. He will receive $50,000 per year in annuity payments for the duration of the trust. If the trust earns more than 5% interest, the excess will be added to the trust's principal. If it earns less than 5%, the principal will be reduced. When the trust ends, the remaining assets will be passed to John's beneficiaries without any estate or gift taxes.

It's important to note that a GRUT has a few unique elements. First, the trust must earn interest equal to or higher than the rate set by the IRS. If the interest rate is lower or the grantor dies before the trust ends, the trust will be closed with the assets going to the estate, not the beneficiaries. Second, the trust must be irrevocable in order to receive the tax benefits of a GRUT. Lastly, the grantor may exchange similar investments with the trust to make sure that the trust makes the required amount of interest every year.