Trust and Estate Counsel

Tennessee Estate Planning Law

Insight and commentary on estate planning issues impacting affluent residents of Tennessee

IRS Interest Rates Drop to All-Time Low

Certain estate planning transactions are sensitive to interest rates that are established each month by the IRS. The interest rates, in turn, are based on market interest rates for debt obligations issued by the U.S. Government.

One rate that is used for several estate planning transactions is known as the Section 7520 Rate. The 7520 Rate for transactions in October of 2010 will be 2%. This ties the all time low (February, 2009) in the 21 year history of the 7520 Rate.

October will be a fantastic month for transactions that work well when the Section 7520 Rate is low. These transactions include grantor retained annuity trusts (“GRATS”), charitable lead annuity trusts (“CLATS”), installment sales to grantor trusts, and intra-family loans. Installment sales and loans use different interest rates than the 7520 Rate, but these rates are also near the all-time low.  If you already have an intrafamily loan, you should consider refinancing the loan in October.

The low interest rate environment is not good for charitable remainder annuity trusts (“CRATS”) and qualified personal residence trusts (“QPRTS”). Even though low interest rates are not favorable for QPRTS, some of my clients are establishing QPRTs to take advantage of the current low values of residential real estate.

Higher estate taxes are on the way in January and you should consider acting now to take advantage of the opportunities presented by the record low IRS interest rates.