May 4, 2020

There is a silver lining to the current economic environment for those interested in estate planning techniques to transfer wealth out of their taxable estates with little or no gift tax consequences. These estate planning opportunities include sales to grantor trusts, intra-family loans, and gifts to trusts such as Grantor Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATs). These strategies all work exceptionally well to transfer wealth using the current low Applicable Federal Rates and provide an opportunity to use the current higher estate tax exemption before it reverts back to $5 million (indexed for inflation) in 2026.

The Applicable Federal Rates, released monthly by the IRS, are used to calculate the minimum amount of interest that must be charged on any covered transaction. There are three separate Applicable Federal Rates based on the term of the loan (short-term, mid-term, and long-term). The May 2020 annual Applicable Federal Rates are 0.25% for short-term loans (3 years or less), 0.58% for mid-term loans (3-9 year terms), and 1.15% for long-term loans (longer than 9 years). The 7520 rate for May, applicable to GRATs, is 0.8%.

The IRS releases new rates each month, and you are required to use the rate applicable in the month a transaction takes place. Contact us today if you would like to discuss taking advantage of this estate planning opportunity during the month of May.

For more information on how these could impact your estate planning, contact:


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