The December § 7520 rate for use with estate planning techniques such as CRTs, CLTs, QPRTs and GRATs is 2.0%, which is unchanged from last month. The December applicable federal rate ("AFR") for use with a sale to a defective grantor trust, self-canceling installment note ("SCIN") or intra-family loan with a note of a 9-year duration (the mid-term rate, compounded annually) is 1.65%, which is a decrease from the November rate. Lower rates work best with GRATs, CLATs, sales to defective grantor trusts, private annuities, SCINs and intra-family loans. The combination of a low § 7520 rate with financial and real estate markets that remain undervalued presents a potentially rewarding opportunity to fund GRATs in December with depressed assets you expect to perform better in the coming years.
Clients also should continue to consider "refinancing" existing intra-family loans. The AFRs (based on annual compounding) used in connection with intra-family loans are 0.25% for loans with a term of 3 years or less, 1.65% for loans with a term of 9 years or less, and 3.32% for loans with a term of longer than 9 years.
Thus, for example, if a 9-year loan is made to a child, and the child can invest the funds and obtain a return in excess of 1.65%, the child will be able to keep any returns over 1.65%. These same rates are used in connection with sales to defective grantor trusts.