Planning Points

How can you cash in on today’s low interest rates?

While we often think of low interest rates and the direct affect they can have on our borrowing and investment, the link between interest rates and the gifting for our family and others is not as common. It can literally pay BIG returns for the family. Low interest rates can offer exceptional opportunity for your estate plan when compared with a higher interest rate environment.

The tax laws have special rates to calculate the transfer tax, i.e., gift and estate tax, and its impact on various strategies designed to move value from your estate to those you desire instead of the “IRS”.Simply put, as the prime and other rates have recently seen new lows, so too have rates used for estate planning. “Locking in” these low rates to an estate strategy may be an appropriate method for your family to get the IRS’ help in enlarging the legacy you leave to your loved ones.Key rates for gifting strategies under the tax laws are at record lows.With certain strategies such as the Grantor Retained Annuity Trust or GRAT for short, low interest rates factor into big future gifts for heirs if the trust’s actual return exceeds the low or “hurdle” rate.

Considering that today’s “hurdle” rates are between 1 and 3 percent (one key rate is less than 1 percent), opportunity exists to keep the complete enjoyment of your principal while removing from your estate much compounded value earned above the hurdle rate and giving this appreciated value to your heirs with little to zero transfer tax. As a result, low interest rates offer unique opportunity in estate planning to greatly enhance your long-term giving to family. When it is considered that interest based plan’s can be created with little to zero gift tax, today’s low “hurdle” rates offer families rare incentive to maximize gifts without doing much more investment-wise than they probably would have done anyway.

Interest Rates and Estate Planning – Is there opportunity for you?