"Insuring" GRAT Success

 

  

Strategic Credit Solutions

The key to stimulating borrowing by Wealthy Individuals is showing each client the Economic Value to be gained by the use of a Strategic Credit. The credit strategy described here will provide Grantors with the means to stay "Fully Invested" while creating or maintaining the ability to effect a "Asset Substitution" that will prevent Grantor Retained Annuity Trust (GRAT) failure and potentially maximize beneficiary value.

Under current tax law wealthy individuals often use Grantor Retained Annuity Trusts to maximize the Economic Value transferred from one generation to the next. When the asset that represents that value is low basis publicly traded stock the success to the strategy and amount of value transferred is subject to the vagaries of the public markets. The use of a Strategic Credit Solution can aid those individuals in exercising their power of “asset substitution” under Internal Revenue rules to effectively “insure” that value will remain to be distributed to its beneficiaries at it maturity. Here, I’ll not detail the rules for, or the circumstances under which, the use of GRATs is recommended. I leave that to the trust professionals.

But, if/when the decision to use a GRAT is made, having cash available to effect an IRS allowed asset substitution at the point in time the client deems appropriate during the term of the GRAT is beneficial on several fronts. The use of cash to effect the substitution will remove any potential for valuation questions related to the assets substituted as well as return low basis shares to the Grantor’s estate.
For “fully invested” individuals cash substitutions can best be done through the grantor’s use of a Strategic Line of Credit specifically structured for this purpose. This will insure that the Grantor has cash available when needed to effect the asset substitution at anytime during the GRAT term.

This Presentation Link (click and make sure to click "open" when the PowerPoint loads) leads to a brief Power Point example, based on actual market values and interest rates, for a theoretical client who owns a large position in Exon Mobil.  It illustrates how use of Strategic Credit can aid the Grantor in his quest to maximize the value of a Generational Asset Transfer achieved by the use of a GRAT.  I hope you will take a look . . .
  
Your past "likes" and "comments" have been most welcome and appreciated.  I look forward to more. 

Don't hesitate to contact me directly for deeper discussion on how my approach Strategic Credit production can drive your Private Wealth Division's profitable growth.  

Mark S. Johnson
404.909.5167