The stock market may be shaky and that garners a lot of attention in the press. Of course, low asset values can be great for most estate planning strategies. But, let’s think beyond asset values. Your clients can capitalize on today’s low interest rate environment in their estate planning. By suggesting this (and explaining it to your clients) you can be the estate planning hero.
From January 1991 through March 2009 the Section 7520 rate averaged more than 6.3%, with a peak of 9.4%. The IRS set the rate in October 2011 at just 1.4%.
Interest rates have an impact on the effectiveness of many estate planning strategies. Whether rates are high or low, there are meaningful shifts in the effectiveness of estate planning strategies. Of course, the strategy still must meet the client’s goals and situation.
Interest rates do not affect certain strategies such as Tenancy in Common Fractionalization and Family Limited Partnerships / FLLCs. Other strategies are simply not that interest rate sensitive, such as the Charitable Remainder Unitrust, the Charitable Lead Unitrust, and the Grantor Retained Unitrust.
However, some strategies tend to work much better in a low interest rate environment (like today):
- Grantor Retained Annuity Trust
- Sale to Intentionally Defective Grantor Trust
- Chartable Lead Annuity Trust
- Loans to Family Members
It may be a very good idea to take a closer look at your client’s estate planning goals and the possible use of these strategies, in light of today’s interest rate environment.
The key message to deliver to your clients is this: “Some strategies work better in a low interest rate environment. Today’s rates are very low; the lowest we’ve seen in generations. It can be to your advantage to shift your estate planning strategies accordingly.”
So, be the hero to your client. Suggest they take a closer look at strategies that take advantage of low interest rates, as well as low asset values.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
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