March Interest Rates Remain Historically Low

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In a blog post on February 29, we highlighted the opportunities to implement significant estate planning in 2012, and the possibility that these opportunities may expire if not acted upon. We want to add that the IRS interest rates in March remain historically low, making certain estate planning techniques even more attractive.

The March 7520 rate remains unchanged from February at 1.4%. What this means for GRATs, for example, is that the annuity payments that get paid back to the grantor are calculated based on a 1.4% interest rate, as opposed to a historically much higher interest rate. If the underlying assets of the GRAT grow at a greater rate than 1.4%, the GRAT becomes an even more powerful wealth transfer vehicle.

In connection with sales to grantor trusts, if a three year promissory note is utilized, the interest rate on the note could be as low as 0.19%. If a nine year note is used, the minimum interest rate could be as low as 1.08%. These low interest rates mean less money needs to be paid to the grantor, resulting in more assets passing to the trust beneficiaries.

In short, the low interest rate environment makes certain estate planning techniques even more compelling in 2012.

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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