If you are a business owner interested in building a financial legacy, a grantor retained annuity trust (GRAT) may be very helpful.

What is a GRAT? It is one of the most common vehicles used to transfer the future appreciation of the shares of a business to children without that appreciation being subject to estate or gift tax. Here is how it works.

Grantor: (Business Owner) -- Shares of business: Grantor transfers shares of the company to the trust using the valuation at the time of the transfer minus any discounts. -- GRAT -- Annuity payments Trust makes fixed annuity payments to the grantor for the term of the trust. Beneficiaries: (Children) -- Remainder value of trust Income taxes are paid by the grantor, which further shifts wealth to the beneficiaries. At the end of the trust term, the amount remaining in the trust above the IRS published discount rate transfers to the beneficiaries tax-free.