Residents of Colorado should be aware of the historically low interest rates. When federal interest rates are low, it creates potential opportunities in estate planning. Using the market’s current state may help yield greater results through grantor retained annuity trusts, an installment sale to a grantor trust or intrafamily loans.
Grantor retained annuity trusts do not fall under the applicable code for the Internal Revenue Service (IRS) to require a gift tax under specific conditions. If the assets within a grantor retained annuity trust appreciates quicker than the appreciable federal interest rate, then the grantor retained annuity trust meets the conditions. This kind of trust provides a method of gifting high-yield assets via an irrevocable trust, pays an annuity for a term of years until the trust’s terms end and then pays out the beneficiaries.
A method to transfer one’s wealth to his or her children and grandchildren is through an installment sale to a grantor trust. For a promissory note, an asset can be sold to an irrevocable trust, which is typically equal to 10% of the note to fund the trust. Any appreciation that is above the federal interest is passed directly to the beneficiaries. If federal interest rates are low, the appreciation of the asset can be above that of the federal interest rate, and the difference can be passed on. Additionally, intrafamily loans can be refinanced to a lower rate to take advantage of the prevailing federal rate.
If an individual is in a position to begin the estate planning process, finding a professional and experienced attorney may help provide the planning and legal advice necessary to make the best choices for the individual. An attorney may be able to maximize an individual’s financial gain and transfer of wealth as desired.