Growth Stocks
Then, the trust could invest in growth stocks that paid low dividends so that most of the returns still ended up going to his kids. Six years after Covey started promoting this technique, Congress termed it abusive and passed a law to stop it.
The 1990 legislation replaced the GRIT with the GRAT, a government-blessed alternative that allowed people to keep stakes in gifts to their children while forbidding the abuse Covey had devised.
Covey studied the law and found an even bigger loophole. “The change that was made to stop what they thought was the abuse, made the matter worse,” he says.
Fredric Grundeman, who helped draft the bill while he was an attorney at the U.S. Treasury Department and is now retired, says the framers didn’t recognize the new law’s potential for abuse.