• November Interest Rates for GRATs, Sales to Defective Grantor Trusts, Intra-Family Loans and Split Interest Charitable Trusts
  • November 5, 2013
  • Law Firm: Proskauer Rose LLP - New York Office
  • The November § 7520 rate for use with estate planning techniques such as CRTs, CLTs, QPRTs and GRATs is 2.0%. This is down from October's 2.4% rate. The applicable federal rate ("AFR") for use with a sale to a defective grantor trust, self-canceling installment note ("SCIN") or intra-family loan with a note of a 9-year duration (the mid-term rate, compounded annually) is down from October's rate to 1.73%. Remember that lower rates work best with GRATs, CLATs, sales to defective grantor trusts, private annuities, SCINs and intra-family loans. The combination of a low § 7520 rate with financial and real estate markets that remain undervalued presents a potentially rewarding opportunity to fund GRATs in November with depressed assets you expect to perform better in the coming years.

    Clients also should continue to consider "refinancing" existing intra-family loans. The AFRs (based on annual compounding) used in connection with intra-family loans are 0.27% for loans with a term of 3 years or less, 1.73% for loans with a term of 9 years or less, and 3.37% for loans with a term of longer than 9 years.

    Thus, for example, if a 9-year loan is made to a child, and the child can invest the funds and obtain a return in excess of 1.73%, the child will be able to keep any returns over 1.73%. These same rates are used in connection with sales to defective grantor trusts.