May 1, 2008 12:00 PM, By Ajay Badlani & Thomas Mendham

By: By Ajay Badlani & Thomas Mendham

Low Internal Revenue Service discount rates make this an ideal time to use grantor retained annuity trusts (GRATs), as it's easier now to get over the hurdle that makes the GRAT effective. Still, the fact that one has to beat the IRS discount rate does create uncertainty that still makes some donors reluctant to employ the strategy.

We've identified a way that could improve taxpayers' chances for success. Our research into current stock option premiums suggests that pursuing covered call option writing strategies can meaningfully boost the probability that the returns on investments in a GRAT could exceed the discount rate that is used in creating that GRAT — especially over shorter time frames.

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