The value of the home, based on appraisals. In the current housing market with prices dropping, "clients are interested" despite the low hurdle rate, Henry says. For example, he adds, if a 70-year-old has a $1 million home and puts it in a QPRT with a 10-year term, the value of the gift, calculated with a 1.6 percent hurdle rate, is $580,000. That value is derived from the IRS calculations using the donor's age, the term of years and the hurdle rate. If the home were to appreciate 4 percent per year, at the end of 10 years it would be worth $1.48 million, and all but $580,000 passes tax-free to the heirs. Obviously there's some guessing involved about where home prices are headed and when. For example, if someone had put a $1 million home into a QPRT three years ago and the value of the home is now $450,000, it's not such a great deal, says Henry. "But if you think home values have bottomed out, now is the time to do it."
Capturing appreciation from stocks
A popular type of GRAT right now for stocks you think might appreciate, according to Henry, is called the short-term, zeroed-out GRAT. The term is only two years, and at the end of the first year, the trust pays back the grantor, or the creator of the trust, approximately 46 percent of the value of the assets that were put in the trust. At the end of the second year, it pays 54 percent. So, in effect, the grantor gets the assets back that he put in (in cash or original stock), and all appreciation above the hurdle rate goes to heirs tax-free. That's why it makes sense to put in a stock the owner thinks will rise rapidly, for instance, one on the verge of going public.
If the stock doesn't appreciate, "the worst-case scenario is that the owner gets the asset back and there was no gift," says Henry.
The current low-rate environment and housing crisis are making GRATs and QPRTs particularly attractive estate tax techniques now, but Henry says clients always need to keep the larger question in mind when deciding to give away assets: "How much can you afford to give away -- or, said another way -- how much do you need to keep to feel comfortable?"