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Practical Planning Tip: Strategies with LESS appeal in a high interest rate environment

December 13, 2023

Today’s year-end planning tip will cover types of Strategies with LESS appeal in a high interest rate environment.

Some strategies to potentially avoid include: A grantor retained annuity trust, or a GRAT, an intentionally defective grantor trust, and intra-family loans which are linked to the monthly 7520 rate and AFRs.

In times of rising interest rates, the GRAT assets will need to outperform the Section 7520 rate in order for the appreciation over the retained income interest to pass to the GRAT beneficiaries free of gift and estate tax. Additionally, Selling assets likely to appreciate to an intentionally defective grantor trust in return for a promissory note bearing interest at the applicable federal rate may produce significant gift and estate tax savings. However, as with a GRAT, the value of the assets sold must grow at a greater pace than the prevailing applicable federal rate in order for the appreciation to be transferred to beneficiaries free of gift or estate tax. Finally, intra-family loans will need to charge a higher interest rate to avoid being treated as gift loans.

Planning tip: Is that these strategies may still serve your planning goals, however, it’s important to pay close attention and evaluate their performance in the current interest rate environment. Don’t just establish these strategies and sit back and coast. A more hands on approach is necessary in this environment

´╗┐You can watch the FULL video here.