Interest rates are lower than they have been for some time, which presents estate planning opportunities, whether you have existing plans or are just beginning the planning process.
Perhaps you have loaned money to your child so she could invest in a business or to some other family member to help him navigate a tough time. Hopefully, you executed a promissory note to memorialize the loan and now would be a fantastic time to consider the terms of that promissory note to capture the lower interest rates. This (i) reduces the amount the borrower must repay and (ii) to the extent the loan was made to someone who will inherit under the terms of your estate planning documents, the decreased interest rate may help to facilitate wealth transfer because by receiving lower payments under the promissory note, the assets being added back to your taxable estate are minimized.
Additionally, grantor retained annuity trusts (GRAT) and charitable lead trusts (CLT) are more attractive right now, especially for those of you with estates potentially subject to the federal estate tax. A grantor retained annuity trust (GRAT) is a financial instrument used in estate planning to minimize taxes on large financial gifts to family members. Under these plans, an irrevocable trust is created for a certain term or period-of-time. The individual establishing the trust pays a tax when the trust is established. At the end of the term, the remaining assets pass to the trust’s beneficiaries without any estate tax implications. A CLT is similar but financial support is provided to one or more charities for a period-of-time and all remaining assets pass to family members or other beneficiaries. A lower rate results in a lower annual payment back to the settlor in a GRAT or the charity in the case of a CLT and a larger estate tax-free distribution to descendants in the future.
Lower interest rates present estate planning and wealth transfer opportunities that may be very beneficial to you and your family. If you would like to take advantage of these opportunities contact the Estate Planning attorneys at Mesch Clark Rothschild.
