Part 2 in a 2-Part Series
Low Interest Rates & Estate Planning
Last week, we began a two-part series about how to share your wealth through estate planning. To read part one in the series, click here. This week, we conclude by examining other options for sharing your wealth. We examine charitable gifts, including intrafamily loans.
Tips for Maximizing your Gifts to Heirs
Charitable Gifts
Professionals calculate the difference between the amount of the initial gift and the current interest of the sum of all payments paid to a charity. They calculate the present interest value using the currently low Section 7520 rate. Thus, the aim is for the money and property in the CLT to grow at a higher rate. So, this allows the transferred tax-free amount to go to beneficiaries at the end of the trust term. In addition, and depending upon the structure, a CLT provides valuable income tax deductions during the grantor’s lifetime. Remember that the payments to make payments to the charity each year regardless of the performance of the trust assets. Poor investment performance can result in the need to use trust principal to cover the required charitable payments.
Intrafamily Loans
An often overlooked strategy to transfer additional wealth without using gift tax and estate tax exemption amounts is an intrafamily loan. These help family members recover from low credit scores or eliminate certain high interest commercial loans. These include: home loans, consumer debt, business loans, or education loans. This type of loan keeps interest payments within the family rather than enriching commercial lenders. You could loan a family member money using the Applicable Federal Rate (AFR) as the interest rate over the term of the loan. The borrower could even invest the money in assets likely to grow faster than the AFR built into the loan. Therefore, you can indirectly transfer this growth to your family members without the need to report the “transferred” amount as a gift to the IRS.
What is an Intrafamily Loan?
Despite the name, intrafamily loans are not informal. So, parties sign executed promissory notes. What’s more, they may present collateral. Finally, these steps keeps the IRS from reclassifying the loan as a taxable gift.
Several other strategies go beyond those discussed above. They can help you take advantage of these historically low interest rates. Now is a great time to give us a call. We would love to review strategies for taking advantage of low interest rates. Doing so can maximize your wealth and the wealth of succeeding generations, even in these economically challenging times. We are available for in-person or virtual meetings, as you prefer.
About Skvarna Law in Glendora and Upland, California
Skvarna Law Firm operates offices in Glendora and Upland, California. We provide legal services. We cover San Bernardino, Los Angeles, Orange and Riverside Counties. This includes several cities. Upland, Ontario, Rancho Cucamonga, Fontana, Colton, Rialto, Chino, Chino Hills, Glendora, Claremont, Pomona, La Verne, Montclair, San Dimas, Azusa, Covina, West Covina, Diamond Bar, Walnut, La Puente, Corona, Norco & Mira Loma. Visit SkvarnaLaw.com to learn more.
