Category: Estate Planning

Low Rates, Low Values Create Planning Opportunities

Posted on: October 13th, 2011
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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