I have one of my clients trained to recognize a dip in the market as a good time to establish a GRAT He previously established 3 GRATs with 2 year terms. We started his first GRAT in the spring of 2008. As you might imagine, this GRAT did not perform well due to the collapse of the stock market. However, his other two GRATs are performing very well and will provide a lot of tax-free funds to his children, who will use the funds to repay loans made to them by their mother.
Recognizing that the significant decline in the value of his healthcare stocks creates a gifting opportunity, he called me today to initiate a fourth GRAT. Only time will tell whether this is a temporary price decrease or a prolonged decrease in the value of the stock. If the combined appreciation and dividends from the stocks exceed 2% over the next 2 years, his children will receive all of the excess.
The great thing about a GRAT is that if the stock goes up, your children win; if the stock stays even or goes down, all of the stock and dividends will be returned to you and your children do not lose anything.
Tennessee Estate Planning Law
Thanks, Bryan! Your post, published on Wednesday August 3rd, was a timely reminder that timing can be important in gifting and estate planning programs. More than a few nimble folks installed GRATs at year-end when the Applicable Federal Rate (AFR) was increasing noticeably.
The reappearance of Bryan’s post as my first Guest Post today, August 4th, is even more timely. The S&P 500 was down another 4.8% today. If you or your clients are interested in gifting assets, now is a good time to consider moving on the thought. If documents are prepared, a transaction involving public securities can be accomplished quickly. If, however, you want to move closely held or other illiquid assets that require appraisal, the valuation process takes some time. Now would be a good time to begin moving if you inclined and are not already doing so.