Low Rates, Low Values Create Planning Opportunities

Estate Planning

In How Low Rates Can Cut Your Tax Bill, WSJ columnist Laura Saunders reports out that current low interest rates create several advantageous tax planning opportunities:

  • Loans to family members – the applicable federal rate for long-term loans (more than 9 years) is only 2.95% in October. An example is given of a $100,000 loan from parents to a child and his spouse to buy a home: the parents could either collect annual interest of $2950 or they could forgive the loan (up to $52,000 of debt forgiveness per year) in whole or in part.
  • Installment Sales — with interest rates low, more of the sale counts as capital gain than interest income (i.e., ordinary income);
  • GRATs — given the Obama proposal to eliminate short-term Grantor Retained Annuity Trusts and current low interest rates, readers are urged to now consider this technique to transfer wealth to family members.
  • CLTs — Charitable Lead Trusts are more likely to pass tax-free assets to beneficiaries when interest rates and asset values are low.  Given historically low interest rates and low asset values, lifetime CLTs should also be considered, particularly for charitably-minded individuals.
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