People should do planning now while the opportunity still exists.

 July offers a GRAT opportunity to make some strategic estate planning moves. The IRS just published the applicable federal rates (AFR) for July:

  • Section 7520 Interest Rate: 2.4%
  • Applicable Federal Mid-term, Annual Rate: 2.0%

These rates continue to slide, and are set now at historical lows. These low rates make certain estate planning opportunities much more attractive, to include:

  • loans to family members
  • installment sales to grantor trusts
  • grantor retained annuity trusts (GRATs) and
  • charitable lead annuity trusts (CLATs).

A recent article in Forbes focuses primarily on the GRAT opportunity for savvy planners. As Forbes writes, GRATs are particularly attractive now, with low AFRs, under-valued assets (particularly real estate) and the ability to create a GRAT with a term as short as three years.   

Here’s why the low rates make GRATs such a good deal. The idea with a GRAT is to transfer an appreciating asset into a trust for a set number of years, say three years. After the three years, any appreciation over the applicable federal rate goes to your heirs, free of estate and gift tax. So, if you own rapidly appreciating assets, particularly if they are currently under-valued, and you anticipate the three-year appreciation to exceed the low AFR, then this strategy could result in some GRAT tax savings.

Reference: Forbes (June 28, 2011) “A GRAT Opportunity: Taking Advantage of Low July 2011 AFRs


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