Stock Price Drop Is a Great GRAT Opportunity
A lot of my clients own stocks in the healthcare industry. Many stocks in that industry have been battered the last three days, primarily due to concern over Medicare cuts.
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.
