The November § 7520 rate for use with estate planning techniques such as CRTs, CLTs, QPRTs and GRATs is 1.0%, which is a reduction from last month's rate of 1.2%. The 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 0.89%, which is down slightly from last month's rate of 0.93%. Remember that 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 and a financial and real estate market that remains undervalued presents a potentially rewarding opportunity to fund GRATs in November with depressed assets that you expect to perform better in the relatively near future.
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 0.22% for loans with a term of 3 years or less, 0.89% for loans with a term of 9 years or less and 2.40% for loans with a term of longer than 9 years. Thus, for example, if a 9-year loan is made to a child who invests the funds and obtains a return in excess of 0.89%, the child will be able to keep any returns in excess of that interest rate.
The final two months of 2012, with an estate and generation-skipping transfer tax exemption of $5,120,000, and low interest rates and asset values, continues to be ripe for sophisticated estate planning techniques.