Wealth Transfer Strategies for a Lower Interest Rate Environment

Interest rates influence how wealth transfers are valued for tax reporting purposes, so it is important to take them into account with your planning. Here are some strategic ideas that can be taken advantage of during a low rate environment.

  • Grantor Retained Annuity Trusts
    • Income Tax Advantages
      • The IRS does not look at the actual growth of the assets, so any appreciation above the hurdle rate is passed on to trust beneficiaries free of gift and estate taxes.
  • Charitable Lead Annuity Trusts
    • Tax-Free Transfer to Family Members
      • Any investment performance in excess of the hurdle rate passes tax free to the family members at the end of the trust’s term.
    • Minimizing CLAT Gift Tax Costs
      • If not structured right, gift taxes are a possibility, thus a CLAT should be structured to zero out at the end of its term, resulting in little or no gift tax.
  • Intra-Family Lending
    • No Gift Tax Liability
      • Good avenue to assist family members without incurring any gift tax liability.
    • Loan to Trusts that Benefit Family Members
      • If the trust is a grantor trust, the interest payments on the loan will not have an income tax consequence.
  • Selling Property to a Grantor Trust
    • Maximizing Leverages
    • Income Tax Advantages
      • There is no capital gain recognized when the property is sold to the trust, and the interest payments to the grantor are not considered taxable income.
    • Estate Tax Advantages
      • The assets are completely removed from his or her estate if the grantor outlives the terms of the promissory note.
    • Minimizing the Risk of Gift Tax
      • Make sure the assets are professionally appraised.

See Wealth Transfer Strategies for a Lower Interest Rate Environment, Fiduciary Trust, July 29, 2019.

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