On March 18, 2020, the IRS announced that the Section 7520 Rate for determining the present value of an annuity is 1.2%. This historically low rate coupled with depressed asset values create an ideal environment to harvest estate and gift tax savings in an otherwise somber time. As we all take a pause from our daily routines, it is also a good time to review your existing estate plan.
One method to capture these savings is through a Grantor Retained Annuity Trust (GRAT). In its most basic form, the GRAT functions as a personal annuity company. The client contributes assets to the GRAT to buy an annuity. That annuity then repays the annuity amount to the client over the annuity term, plus interest of 1.2%.
Following the end of the annuity term (usually a few years), asset appreciation exceeding 1.2% per year stays outside of the taxable estate, without making a taxable gift. For those clients who remain optimistic on the American economy, this is an excellent planning opportunity to efficiently transfer assets and manage tax.
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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, aviation & aerospace, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, internal investigations, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Lakewood Ranch, FL, Los Angeles, New York and Wilmington, DE.