Here's what the wealthy are doing with their estate planning during the COVID-19 crisis:
The 7520 rate is what makes a difference in having this strategy work. The IRS releases these rates on a monthly basis for the following month. Currently the May 2020 rate is 0.8%. From a historical perspective, it is incredibly low. A year ago, in May of 2019, the rate was 3.2%. The lower the rate, the more likely the GRAT has a higher chance of success.
That is where the current market makes a GRAT even more interesting. During the Covid-19 crisis, the S&P 500 was down over 30% at one point. But Blackrock found that since 1982 the one-year performance of US stocks in a year following a bear market averaged 41.1%. As this strategy allows appreciation to pass to the beneficiaries at the end of the GRAT term, the upside potential of putting a GRAT into work can be quite high.
“In the past, I have had clients who have had GRATs and had the stock underperform the hurdle rate. In those instances, the grantor client received back all of the assets of the trust and the other beneficiaries did not receive anything,” explains Burns “The consequence to the Grantor was the cost of preparing the documents.”
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