Personal Planning Strategies - August 2016

LOW INTEREST RATES YIELD WEALTH TRANSFER OPPORTUNITIES

Low interest rates can create wealth transfer opportunities. For various wealth transfer techniques, the IRS assumes that a certain minimum interest rate is in effect, known as the applicable federal rate (AFR), and in August 2016 this rate is near historic lows. To the extent that an investment return can be earned that is greater than the AFR, wealth is transferred to the next generation transfer tax free.

In this issue of Personal Planning Strategies, we focus on three estate planning strategies which work best in a low interest rate environment: grantor retained annuity trusts (GRATS); loans between family members; and charitable lead trusts (CLTS). All of these devices can be used to shift future appreciation from the donor to the lower generation outside of the transfer tax system. Moreover, when markets are depressed, the potential for appreciation is greater. Thus, the timing is right to do this type of