For June 2012 the Section 7520 dropped to 1.2%, an all-time low. This rate is equal to 120% of the Federal mid-term rate rounded to the nearest 2/10 of 1%. This rate is used to measure the present value of certain interests, including the present value of a life or term interest in trust.
This is significant. Certain estate planning techniques, including grantor retained annuity trusts (GRATs), installment sales to grantor trusts and intra-family loans, are much more attractive when interest rates are low. With rates at historic lows, now may be an opportune time to consider these strategies.
For a more detailed discussion of grantor retained annuity trusts (GRATs), see my recent News and Insights post, "Grantor Retained Annuity Trusts and the Facebook IPO: Facebook Insiders 'Like' the GRAT."
The full table of Applicable Federal Rates for June:
| ANNUAL | SEMI-ANNUAL | QUARTERLY | MONTHLY |
Short-term | 0.23% | 0.23% | 0.23% | 0.23% |
Mid-term | 1.07% | 1.07% | 1.07% | 1.07% |
Long-term | 2.64% | 2.62% | 2.61% | 2.61% |
If you have any questions, or would like to discuss how these rates might relate to your own planning, please do not hesitate to contact us. You can reach me at (732) 224-1200 or by e-mail at fschoenbrodt@neff-aguilar.com.