• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Home
  • BLOG
  • Newsletters
  • Reviews
    • Our Reviews
    • Review Us
  • Videos
  • Contact Us
  • WhoWe Are
    • A Message From Mark Costley
    • Meet Our Team
    • Communities We Serve
  • WhatWe Do
    • Advanced Estate Planning
      • Asset Protection
      • Business Succession Planning
      • Charitable Giving
      • Family Foundation
      • Family Limited Partnerships
      • Grantor Retained Annuity Trust
      • Irrevocable Life Insurance Trust
      • Planning For Charitable Gifts
    • Counseling Non-Profits
    • Elder Law and Special Needs Planning
    • Estate and Gift Tax Planning
    • Estate Planning
    • Probate & Trust Administration
    • Process
    • SECURE Act
    • Social Entrepreneurship & Business Law
  • WhyWe Do It
    • Peace Of Mind
  • Resources
    • Caregiving Resources
      • Caregiving Worksheets
      • Our Book
    • Definitions
    • Elder Law Reports
    • Estate Planning Resources
      • Estate Planning Articles
      • Estate Plan Checkup
      • Estate Planning Reports
      • Is Your Estate Plan Outdated?
      • Top 10 Estate Planning Techniques
    • Frequently Asked Questions
      • Elder Law
      • Estate Planning
      • Estate Planning for Parents
      • FAQs for Families Without an Estate Plan
      • Divorce and Your Estate Plan
      • Estate Planning for Women
      • Estate Planning 101
      • Legacy Wealth Planning
      • LGBTQ Estate Planning
      • Nursing Home Planning
      • Spliter
        • Philanthropy and Your Estate Plan
        • Planning for Dementia
        • Probate
        • Serving as Executor
        • Special Needs Planning
        • Tax Avoidance Planning
        • Trust Administration & Probate
        • Understanding the Social Security Retirement System
        • Will Contests
    • Pre Consultation Form
    • Probate Resources
      • Chapel Hill Probate
      • Raleigh Probate
    • Professional Resources

Clarity Legal Group

Estate Planning Information Center

919-484-0012 Schedule Consultation
Attend a Free Seminar
  • WhoWe Are
    • A Message From Mark Costley
    • Meet Our Team
    • Communities We Serve
  • WhatWe Do
    • Advanced Estate Planning
      • Asset Protection
      • Business Succession Planning
      • Charitable Giving
      • Family Foundation
      • Family Limited Partnerships
      • Grantor Retained Annuity Trust
      • Irrevocable Life Insurance Trust
      • Planning For Charitable Gifts
    • Counseling Non-Profits
    • Elder Law and Special Needs Planning
    • Estate and Gift Tax Planning
    • Estate Planning
    • Probate & Trust Administration
    • Process
    • SECURE Act
    • Social Entrepreneurship & Business Law
  • WhyWe Do It
    • Peace Of Mind
  • Resources
    • Caregiving Resources
      • Caregiving Worksheets
      • Our Book
    • Definitions
    • Elder Law Reports
    • Estate Planning Resources
      • Estate Planning Articles
      • Estate Plan Checkup
      • Estate Planning Reports
      • Is Your Estate Plan Outdated?
      • Top 10 Estate Planning Techniques
    • Frequently Asked Questions
      • Elder Law
      • Estate Planning
      • Estate Planning for Parents
      • FAQs for Families Without an Estate Plan
      • Divorce and Your Estate Plan
      • Estate Planning for Women
      • Estate Planning 101
      • Legacy Wealth Planning
      • LGBTQ Estate Planning
      • Nursing Home Planning
      • Spliter
        • Philanthropy and Your Estate Plan
        • Planning for Dementia
        • Probate
        • Serving as Executor
        • Special Needs Planning
        • Tax Avoidance Planning
        • Trust Administration & Probate
        • Understanding the Social Security Retirement System
        • Will Contests
    • Pre Consultation Form
    • Probate Resources
      • Chapel Hill Probate
      • Raleigh Probate
    • Professional Resources
Home » Estate Planning Articles » How Low Interest Rates Can Influence Your Estate Plan

How Low Interest Rates Can Influence Your Estate Plan

Compliments of Our Law Firm,
By: The American Academy of Estate Planning Attorneys

We all know that low interest rates can create excellent opportunities to buy or refinance real estate. But did you know that a low interest rate environment can have an impact on your estate planning options as well?

The four corners of a solid, basic estate plan remain the same no matter the economic climate. Interest rates do not determine the effectiveness of a Living Trust, Pourover Will, General Durable Power of Attorney, or a Healthcare Power of Attorney.

Interest rates can, however, influence the effectiveness of a number of advanced estate planning methods. Let’s take a look at just a few:

  • Grantor Retained Annuity Trust. A Grantor Retained Annuity Trust, or “GRAT,” is an estate planning tool with which you establish a Trust and retain a stream of income payments (the annuity) for yourself. When the term designated for the annuity expires, the children or other family members you’ve designated as beneficiaries receive whatever assets are left in the Trust. 

    The purpose of establishing a GRAT is to remove highly appreciated assets from your estate by passing them on to your chosen beneficiaries during your lifetime with the lowest possible gift tax bill. When you set up a GRAT, the IRS determines the value of the gift to your remainder beneficiaries by taking the value of the assets contributed to the Trust and subtracting from this the actuarial value of the scheduled annuity payments for the term of the Trust, using the “Section 7529” interest rate. The Section 7520 interest rate is a theoretical interest rate assigned to the Trust – it is equal to 120% of the applicable federal midterm interest rate for the month the Trust is established.

    When the Trust investments outperform the Section 7520 rate, the excess passes to your beneficiaries gift tax-. This is easier to accomplish when the Section 7520 rate is low, making a GRAT a more effective estate planning trategy in a low interest rate environment.

 

  • Charitable Lead Annuity Trust. A Charitable Lead Annuity Trust, or “CLAT,” is similar to a GRAT except that, instead of receiving the initial stream of annuity payments yourself, you designate a charity to receive them. When the Trust ends, the remainder goes to your children or other designated beneficiaries. As with a GRAT, the IRS values a CLAT using the Section 7520 rate. If the CLAT’s investments out-earn that rate, the excess passes to your beneficiaries gift and estate tax-. This is another instance in which very low interest rates can mean the opportunity to pass on large amounts to your loved ones while minimizing your tax bill.

 

  • Self–Cancelling Installment Note. A Self-Cancelling Installment Note, or “SCIN”, is another estate planning option for parents who want to move an asset out of their taxable estate while minimizing their gift tax liability. This strategy works well for parents whose actual life expectancy is less than the life expectancy that appears on actuarial tables.

 

  • When you use a SCIN, you sell an asset to your child in return for a stream of payments. At your death, the payments end – your child’s debt is cancelled with no further obligation. Since the asset has been transferred to your child, its value is not included in your taxable estate; instead, only the loan payments made to you count toward your estate tax bill. If the promissory note governing the transaction is properly structured, the IRS does not view the asset transfer as a gift; therefore, you also avoid gift tax liability. When interest rates are low, a SCIN can be an effective estate planning strategy because it keeps your child’s payments to you low, allowing you to transfer more wealth to your child.

 

  • Qualified Personal Residence Trust. The Qualified Personal Residence Trust, or “QPRT,” is an example of an estate planning strategy that does not work as well in a low interest rate environment. Under this arrangement, you transfer your home into a Trust, retaining the right to live in your home for a specified number of years. After this term of years has expired, your home is transferred to your children or other beneficiaries selected by you. The goal of a QPRT is to remove your home from your taxable estate and transfer it to your children (or other beneficiaries) with the smallest possible gift tax bill. Your gift tax bill is determined by the value of your beneficiaries’ remainder interest in the home, and this is discounted more heavily with a higher interest rate.

When interest rates are low, certain advanced estate planning strategies become very appealing, while the effectiveness of others is diminished. Your estate planning attorney can help you determine which tools and techniques are best suited to meet your family’s needs.

Date: August 31, 2012

Clarity Legal Group

Free Estate planning Worksheet

There's a lot that goes into setting up a comprehensive estate plan, but with our FREE worksheet, you'll be one step closer to getting yourself and your family on the path to a secure and happy future.

  • This field is for validation purposes and should be left unchanged.

Follow Us

Address

Clarity Legal Group
1414 Raleigh Road Suite 445
Chapel Hill, NC 27517
United States (US)
Phone: 919-484-0012

reply@claritylegalgroup.com

Mailing Address
PO Box 2207
Chapel Hill, NC 27515

Exchange West Office Map

Office Hours

Monday9:00 AM - 5:30 PM
Tuesday9:00 AM - 5:30 PM
Wednesday9:00 AM - 5:30 PM
Thursday9:00 AM - 5:30 PM
Friday9:00 AM - 2:00 PM

Map

clarity_sidbr_map
  • About The American Academy
  • Disclaimer
  • Diversity
  • Sitemap
  • Privacy Policy
  • © 2023 American Academy of Estate Planning Attorneys.
    All Rights Reserved.
    Attorney Advertisement
  • Clarity Legal Group footer logo

    Clarity Legal Group is a registered Trademark and trade name for The Mark Costley Law Group, PLLC


    • Read Our 5-Star Client Reviews

"AV® , AV Preeminent® , Martindale-Hubbell DistinguishedSM and Martindale-Hubbell NotableSM are Certification Marks used under license in accordance with the Martindale-Hubbell® certification procedures, standards and policies."

x

Fill out the form below to access to the worksheets and checklists discussed in The Ultimate Caregiver Guide! After submitting this form, you can clic

  • This field is for validation purposes and should be left unchanged.