In October, 2011, the 7520 rate dropped 0.6% from September to reach an all time low of 1.4% and remains at 1.4% for November. The rate was 3.0% just a few months ago in May. This drop provides a rare opportunity to take advantage of estate planning techniques designed to utilize low interest rates.

How Could this Benefit You?

In particular, Grantor-Retained Annuity Trusts (GRATs) and Charitable Lead Annuity Trusts (CLATs) benefit from a low 7520 rate because any increase in the value of the trust assets in excess of the 7520 rate passes free of transfer taxes to your family members once the annuity payments under the GRAT or CLAT have ended, resulting in a no-risk transfer of wealth to younger generation family members.

Another reason to take advantage of GRATs at the present time is that Congress may again consider changes to GRATs. The House of Representatives passed bills three times in 2010 which imposed:

  • a 10-year term requirement for GRATs;
  • eliminated “zeroed-out” GRATs, requiring the value of the remainder interest to exceed zero; and
  • prohibited the annuity amount from decreasing during the first 10 years of the GRAT term.

None of these bills were passed in the Senate. President Obama has proposed the same requirements as in the 2010 House bills in his Fiscal Year 2012 Revenue Proposals.

Other planning tools benefiting from the low interest rate environment include:

  • installment sales to intentionally defective grantor trusts 
  • private annuities
  •   intra-family loans