Estate Planning Ideas in a Low Interest Rate Environment

By Jason S. Palmisano September 20, 2019Estate & Trust Law

With the Fed’s recent interest rate cut and more interest rate reductions likely on the way, this may be a good time to take advantage of the low interest rate environment to transfer assets to your beneficiaries with minimal tax consequences and significant benefits to your beneficiaries.

One strategy is to create a trust called a grantor retained annuity trust (“GRAT”) and transfer highly appreciated assets to the GRAT. The terms of the GRAT would state that you would receive a stream of income payments (the annuity) for yourself over a certain term of years. When the term designated for the annuity expires, the beneficiaries you’ve designated would receive whatever assets are left in the GRAT.

When the GRAT investments outperform the IRS mandated minimal interest rate for the annuity (currently, 2.2%), the excess passes to your beneficiaries free from any federal gift tax. This is easier to accomplish when the interest rate is low, making a GRAT a more effective estate planning strategy in a low interest rate environment.

If you are charitably inclined, now may be a good time to create a Charitable Lead Annuity Trust. A Charitable Lead Annuity Trust, or “CLAT,” is similar to a GRAT except that, instead of you receiving the initial stream of annuity payments, you designate a charity to receive them. When the Trust ends, the remainder goes to the beneficiaries named in the Trust.

As with a GRAT, if the CLAT’s investments out-earn the IRS mandated interest rate, the excess passes to your beneficiaries are free from any federal transfer taxes. 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.

A third strategy that might be useful is a low-interest loan to family members. You are generally required to charge an adequate interest rate on the loan for the use of the money, or interest will be deemed to be charged for income tax and gift tax purposes. However, with the current low interest rates, you can provide loans at a very low rate and family members can effectively keep any earnings in excess of the interest they are required to pay you. If you would like to discuss your estate and trust planning options, please contact PLDO Senior Counsel Jason S. Palmisano in our Florida office at 561-362-2030 or email jpalmisano@pldolaw.com.

 

 

Disclaimer: This blog post is for informational purposes only. This blog is not legal advice and you should not use or rely on it as such. By reading this blog or our website, no attorney-client relationship is created. We do not provide legal advice to anyone except clients of the firm who have formally engaged us in writing to do so. This blog post may be considered attorney advertising in certain jurisdictions. The jurisdictions in which we practice license lawyers in the general practice of law, but do not license or certify any lawyer as an expert or specialist in any field of practice.

 

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Jason S. Palmisano is a Senior Counsel with Pannone Lopes Devereaux & O'Gara LLC and a member of the Estate and Trust Planning, Administration and Litigation Team. He focuses his practice on counseling clients in all areas of trust and estate planning and administration, Elder Law and guardianship law, Medicaid planning, disability planning and probate administration.

Attorney Palmisano has significant experience advising clients on wealth management, asset protection, charitable giving strategies and in all matters of tax planning, including multinational tax and advising clients on business and succession planning. In addition, his practice includes preparing a wide variety of trusts, including grantor, irrevocable life insurance, special needs and qualified personal residence trusts, among others.

Prior to his legal practice, he was a Campus Director for Athletes in Action, where he provided leadership training and led charitable giving campaigns.

Attorney Palmisano earned his J.D. from Samford University, Cumberland School of Law, cum laude, his LL.M in Taxation from the University of Florida Levin College of Law and a B.S. in Math Education from the Miami University in Ohio.  He is licensed to practice in Florida and is a Florida Bar board certified lawyer in wills, trusts and estates law, which is a highly regarded designation that recognizes member-attorneys for their high standard of professionalism, ethics and special knowledge, skills and proficiency in practice areas.

To contact Attorney Palmisano, call at 561-362-2034 or email jpalmisano@pldolaw.com.  

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