• Follow
  • Follow
  • Follow


9990 Coconut Road, Suite 342, Bonita Springs, FL 34135



(239) 498-6999

  • Home
  • Attorney Profile
  • Practice Areas
    • Estate & Trust Planning
    • Probate, Estate & Trust Administration
    • Asset / Creditor Protection Planning
    • Business Planning
    • Wealth Transfer Planning
  • Testimonials
  • About Us
  • Resources
    • Blog
    • Events
    • Newsletters
    • Video FAQS
  • Contact Us
Casey Law Group
  • Home
  • Attorney Profile
  • Practice Areas
    • Estate & Trust Planning
    • Probate, Estate & Trust Administration
    • Asset / Creditor Protection Planning
    • Business Planning
    • Wealth Transfer Planning
  • Testimonials
  • About Us
  • Resources
    • Blog
    • Events
    • Newsletters
    • Video FAQS
  • Contact Us

Strike While the Rates Are Low: Low Interest Rate Planning Strategies for Passing on Your Wealth

COVID-19 has deeply impacted the economy in the United States and will likely continue to do so for some time. While most would agree that this pandemic is not a positive development, there are nevertheless some silver linings. One such silver lining is that certain powerful estate planning strategies have become much more attractive and feasible based on the current low interest rate environment. If you have a relatively large estate (over $10 million individually or $20 million as a married couple), you may want to talk with your estate planning attorney about the following planning strategies.

1. A Grantor Retained Annuity Trust (GRAT) is a tool that can be created by an experienced estate planning attorney to transfer significant wealth at a reduced transfer tax cost. This strategy requires a grantor (the person creating the trust) to transfer accounts or property into a carefully drafted irrevocable trust. The trust is designed to pay the grantor a stream of income at least annually and over a specific term of years. At the end of the specified term, the payments end and any property left in the trust not paid to the grantor is transferred (gift tax-free) to a third-party remainder beneficiary. This beneficiary is usually a child or descendant of the grantor.

The goal of a GRAT is for the assets in the trust to grow faster (at a higher interest rate) than the low interest rate published by the Internal Revenue Service (IRS), also known as the Section 7520 rate, used to calculate the present value of the payments made back to the grantor. If this occurs, the accounts or property remaining in the GRAT are transferred to the remainder beneficiaries free of gift taxes. 

The following factors can impact the effectiveness of a GRAT:

  • The health of the grantor and whether the grantor can be expected to live beyond the GRAT term

  • The interest rate (Section 7520 rate) for the month in which the accounts or property are transferred to the GRAT

  • The nature of the accounts or property being contributed to the trust and their growth potential

  • The remaining lifetime gift tax exclusion amount available to the grantor

It is also important to note that the creation of a GRAT will require the filing of a gift tax return to report the gift. With deliberate planning, however, the amount of the gift to be reported can be negligible.

2. A Charitable Lead Trust (CLT) can also offer significant tax savings if you intend to make charitable giving a part of your estate plan and legacy. This is particularly true in today’s low interest rate environment. Similar to a GRAT, a CLT is an irrevocable trust that makes payments out of the trust to a beneficiary (a qualifying charity) over a specified period and is tied to the IRS Section 7520 rate. The period can be a set number of years or for the lifetime of the grantor. Unlike a GRAT, however, a CLT names a charity as the recipient of the annual payments over the trust term. Upon completion of the trust term and payments, the accounts and property remaining in the trust pass to chosen beneficiaries (often children or descendants) free of gift and estate tax.
 
The value of the gift reported on the gift tax return for the year in which the gift was made is calculated as the difference between the amount of the initial gift and the present interest of the sum of all of the payments payable to the charity. Because that present interest value is calculated using the currently low Section 7520 rate, the aim is for the money and property in the CLT to grow at a higher rate, thus allowing more of the growth to be transferred tax-free to remainder beneficiaries at the end of the trust term. In addition, and depending upon how it is structured, a CLT can provide valuable income tax deductions during the grantor’s lifetime. 

It is important to remember that the payments to the charity must be made each year regardless of the performance of the trust assets. Poor investment performance can result in the need to use trust principal to cover the required charitable payments.
 
3. Intrafamily loans are another often overlooked strategy to transfer additional wealth to family members without unnecessarily using up your gift tax and estate tax exemption amounts. These kinds of loans can be an excellent way to help family members recover from low credit scores or eliminate certain high interest commercial home loans, consumer debt, business loans, or education loans, all while keeping interest payments within the family rather than enriching commercial lenders.

In a low interest rate environment, you could loan a family member money using the Applicable Federal Rate (AFR) as the interest rate over the term of the loan. The loaned money could then be invested by the borrower in assets that are likely to grow faster than the AFR built into the loan. The difference between the AFR payable to the lender and the realized rate of growth of the invested loan proceeds would accrue to the benefit of the borrower and outside of your estate (leaving less to be taxed upon your death). Thus, you can indirectly transfer this growth to your family members without the need to report the “transferred” amount as a gift to the IRS. 

As a reminder, even though these are intrafamily loans, this does not mean that they can be informal. Such loans must be properly documented with executed promissory notes and, where appropriate, secured with collateral as if they were arm’s-length transactions so that the IRS cannot reclassify all or part of the loan as a gift.

There are several other strategies beyond those discussed that can help you take advantage of these historically low interest rates. Now is a great time to give us a call so we can review strategies for taking advantage of low interest rates. Doing so can maximize your wealth and the wealth of succeeding generations, even in these economically challenging times. We are available for in-person or virtual meetings, as you prefer.

Newsletter Archive


View All Newsletters
  • Advisor Focused Newsletter 50
  • Client Focused Newsletter 51

Services:

Estate & Trust Planning
Probate, Estate & Trust Administration
Asset/Creditor Protection Planning
Business Planning
Wealth Transfer Planning

Disclaimers:

Terms & Conditions
Privacy Policy

Follow Us:

  • Follow
  • Follow
  • Follow

Disclaimers:

Terms & Conditions
Privacy Policy

Services:

Estate & Trust Planning
Probate, Estate & Trust Administration
Asset/Creditor Protection Planning
Business Planning
Wealth Transfer Planning

Follow Us:

  • Follow
  • Follow
  • Follow
2020 Copyright Casey Law Group P.L. A Website Design by Ahrens Technologies | Kirkland’s Webdesgin.
Accessibility by WAH
  • Home
  • About Us
  • Asset and Creditor Protection Planning
  • Asset Protection Law
  • Attorney Profile
  • Blog
  • Business
  • Business Formation Law
  • Business Owner Planning
  • Business Planning
  • Contact Us
  • Contact Us
  • Estate & Trust Planning
  • Estate Planning Law
  • Events
  • Home
  • Privacy Policy
  • Probate, Estate & Trust Administration
  • Terms and Conditions
  • Testimonials
  • Testing Video
  • Trust Administration
  • Video FAQs
  • Video Links
    • Are there other ways of leaving property to my beneficiaries other than through a will or a trust?
    • Are there things I can do to protect my existing business?
    • Can any attorney create a family wealth trust?
    • Can I leave my property to anyone I choose? 
    • Can I make provision in my will for my pets?
    • Can I specify that certain people, like a brother or sister, should never receive any of my property?
    • Can I transfer real estate into a family wealth trust?
    • Can I use my will to name a guardian to care for my young children and mage their property?
    • Can I use my will to name a guardian to care for young children and manage their property?
    • Can my power of attorney make or change my will?
    • Can trustees get help administrating trusts? 
    • Do I have to employ asset protection for all types of assets?
    • Do I need a financial power of attorney?
    • Do I need to name a trustee in my will?
    • Do we have to take account of minority shareholders’ interests and wishes in a family business?
    • Does a small business (subchapter S corporation give me the same protection as limited liability company (LLC))?
    • Does a will control all of my property?
    • Does all property have to go through probate when a person dies?
    • Does an executor (personal representative) get paid?
    • Does the person named in the will as executor (personal representative) have to serve?
    • How can a limited liability company provide me with asset protection?
    • How can an estate plan may things easier on my family after I die?
    • How can I leave specific items to particular people?
    • How can I make sure I will keep control of the family business if I get divorced?
    • How do I best protect my personal assets if I start a small business?
    • How do I get started with a succession plan?
    • How does a family wealth trust differ from a revocable living trust?
    • How does a revocable living trust avoid probate? 
    • How does trust administration differ from probate?
    • How is undue influence determined?
    • How long is a will valid?
    • How often should a succession plan be updated?
    • How often should my will be reviewed?
    • I want to start a small business with two partners. What is the best way to protect myself?
    • If I become incapacitated, will I need a durable power of attorney if I already have a living trust?
    • If I create a revocable living trusts, do I still need a will?
    • If I die owing debts, who pays my debts?
    • If I made a will, but lived in another state. Now I live in Florida. What should I do?
    • If I make a living trust, do I still need a will?
    • If there is a divorce in the family can we get shares back from an ex-spouse who is no longer a family member?
    • Is it possible that I may need more than one LLC?
    • Must I leave something to my spouse and children?
    • Should I avoid probate?
    • What are the benefits of a succession plan?
    • What are the signs of undue influence?
    • What are the uniform fraudulent transfer act (UFTA) and the uniform fraudulent convevance act (UFCA)?
    • What are trusts?
    • What benefits does a trust offer?
    • What does a guardian do?
    • What does a proper estate plan include?
    • What does if mean to fund a trust?
    • What does testate and intestate mean?
    • What happens if I become unable to care for myself? 
    • What happens if I die without a will?
    • What happens if you do not have a will or trust? 
    • What if become disabled and am no longer able to manage my affairs?
    • What is a bypass trusts?
    • What is a domestic asset protection trust?
    • What is a durable power of attorney?
    • What is a family wealth trust?
    • What is a fiduciary?
    • What is a health care power of attorney?
    • What is a health care proxy?
    • What is a living will?
    • What is a pour-over will?
    • What is a QTIP trust?
    • What is a registered agent?
    • What is a revocable trust?
    • What is a testamentary trust?
    • What is a testator and a testarix?
    • What is a trustee?
    • What is an A-B trust?
    • What is an executor (personal representative) and what does the executor do?
    • What is an irrevocable trust?
    • What is asset protection?
    • What is codicil?
    • What is estate planning?
    • What is incapacity or a lack of capacity?
    • What is included in my estate?
    • What is offshore planning?
    • What is personal residence trust?
    • What is piercing the corporate veil?
    • What is probate?
    • What is tenants by the entirety?
    • What is the difference between a will and a trust?
    • What is the difference between having a will and family wealth trust?
    • What is the difference between traditional estate planning and wealth planning?
    • What is trust administration?
    • What is wealth transfer planning?
    • What property does my will control?
    • What protection is available through a family limited partnership?
    • What will I still have control over my property if I have a living trust?
    • When does the trust administration process start?
    • When is the right time to begin estate planning for myself?
    • When is the right time to start succession planning?
    • When should an estate plan be reviewed? 
    • When should I review my existing will?
    • When should I start asset protection?
    • Who administers trusts?
    • Why do I have to be careful about fraudulent transfer rules?
    • Why should I make a living trust?
    • Will a family wealth trust avoid income taxes?
    • Would a living trust provide protection for my assets if I were sued?
  • Wealth Transfer Planning
  • Wealth Transfer Planning
  • Will and Trusts Law