Personal Wealth Law News

The IRS has just announced that the applicable federal rate under Code Section 7520 will fall to 2.6% in August, down from 2.8% in July and 3.2% in June. These very low rates make certain planning and wealth transmission techniques far more effective. For example, the use of grantor retained annuity trusts (GRATs) is far more effective when interest rates are lower. This means that larger amounts can be transferred to succeeding generations= more efficient estate planning.

 In addition, low interest rates mean that intra-family loans are more effective. For example, under the August rates, you can lend to a child, for example, for a term of less than three years at annual rate of just .53% per year. The child can then invest the money and keep the difference in rates. This is a way of transferring wealth without using annual gift tax exclusions or lifetime exemptions.

 Combined with the continued low values in many assets, these low interest rates make this an ideal time for estate planning.