by Jeffrey D. Steed
In what has become a near-landmark publication, Julie K. Kwon and Daniel J. Loewy, two senior analysts from Bernstein Global Wealth Management, published their article, GRATs: On a Roll, in the June 2005 issue of Trust & Estates Magazine. See Julie K. Kwon & Daniel J. Loewy, GRATS: On a Roll, Trusts & Estates, June 2005, at 33. In their article, Kwon and Loewy analyze the “probabilities of success” when comparing a rolling grantor-retained annuity trust (“GRAT”) to other investment-driven gifting strategies for large estates, including a sale to a defective grantor trust (“DGT”). See id. Using a highly advanced wealth forecasting analysis model that simulated over 10,000 capital market scenarios across a wide spectrum of asset classes, Kwon and Loewy determined that, in almost all cases, a rolling GRAT strategy statistically outperforms other popular strategies for increasing the likelihood of successful wealth transfer. See id. According to Kwon and Loewy, the success of rolling GRATs is largely due to the ability to significantly decrease the inherent market risk associated with investment-driven estate planning strategies while, at the same time, capturing the upside of market volatility. See id. In other words, the ability to lock in wealth transfer gains from previous years in a rolling GRAT strategy has a greater probability to outweigh any advantage from lower interest-rate benefits and the avoidance of all mortality risk generally provided by a sale to a DGT.