March 2009

Deborah DiNardo, Esq.

You may be able to salvage a Grantor Retained Annuity Trust (GRAT) which, due to market declines, is not performing as you had planned. Perhaps the grantor of the GRAT owns other assets which have declined in value primarily (if not exclusively) because of the current financial turmoil. If you have confidence that those other assets have excellent potential not only to rebound with the markets but to further grow in value, where the GRAT assets do not, then the grantor may have the option to substitute those assets for the poorly performing GRAT assets for the remainder of the GRAT term. This substitution of assets may give the grantor the opportunity to cut his/her losses and get the most out of the GRAT.

On the other hand, if the grantor does not have other assets appropriate as substitutes for the GRAT's present assets, the grantor should consider gifting the GRAT annuity payments into a new GRAT (perhaps with a longer term?) as soon as the grantor receives them to salvage the overall plan and shift the anticipated growth in value.