Estate Planning Benefits in a Volatile Market

The volatile nature of today’s market can be beneficial for wealthier families who want to shelter assets from taxes. Three ways families can take advantage of the volatile market are by taking advantage of discounts, creating grantor-retained trusts (GRATs), and making intrafamily loans.

Families who give stock in privately held companies may receive a discount due to the current market. Generally, the IRS allows a 30% to 35% discount for private stock, and owners of private stock can argue for higher discounts when the publically traded markets are highly unpredictable.

Families can also benefit from the volatile market by creating a GRAT for holdings in family businesses or battered stocks in publicly traded companies. A GRAT allows the grantor to continue receiving annuitized payments for a set period of time. GRATs can have terms as short as two years, but the assets must appreciate more than the “hurdle rate” calculated by the IRS (currently, the hurdle rate is 2.2%).

Lastly, families can lend assets to family members to help fund an investment. The family member receiving the loan can buy depressed assets and then receive anticipated appreciate on the assets after the loan is paid back.

See Kelly Greene, How Volatility Eases Estate Planning, The Wall Street Journal, Aug. 20, 2011.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.