Estate Planning Opportunities with Historically Low Interest Rates -

Many of the sophisticated estate planning strategies designed to reduce gift and estate tax exposure are tied to interest rates of the month in which the strategy is implemented and, generally, are more effective in a low interest rate environment.

Each month the IRS publishes a 7520 rate, a short-term AFR rate, a mid-term AFR rate, and a long-term AFR rate. The 7520 rate is used for actuarial calculations in valuing interests in some estate planning strategies and the AFR rates are minimum safe-harbor interest rates that must be applied to related party transactions (e.g., transactions between family members or family trusts) to avoid adverse tax consequences. The short-term AFR rate applies to a transaction with a term up to three years, the mid-term AFR rate applies to a transaction with a term greater than three years and up to nine years, and the long-term AFR rate applies to a transaction with a term greater than nine years.