The December § 7520 rate for use with estate planning techniques such as CRTs, CLTs, QPRTs and GRATs is 1.2%, which is a slight increase from last month's rate of 1.0%. 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 9-year duration (the mid-term rate, compounded annually) is 0.95%, which is up slightly from last month's 0.89% but still very low. 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 December 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 0.24% for loans with a term of 3 years or less, 0.95% for loans with a term of 9 years or less and 2.4% 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 0.95%, the child will be able to keep any returns in excess of that interest rate.
December, possibly the final month with an estate and generation-skipping transfer tax exemption of $5,120,000, continues to be ripe for sophisticated planning techniques.