United States

September section 7520 rate still 1.4 percent, but time waits for no one

Looming risks to planning could make low rates the last show in town


The IRS announced in Rev. Rul. 2016-20 that the section 7520 rate for September will remain at 1.4 percent. Applicable rates for other interest rate-sensitive wealth transfer and charitable planning vehicles stayed essentially the same.

Applicable interest rates for such popular planning techniques as grantor retained annuity trusts (GRATs), sales to defective trusts and intra-family loans are holding steady near historic lows. What isn’t holding steady, potentially anyway, is the larger wealth transfer planning environment. Interest rates, after all, are just one of three primary factors that either make wealth transfer planning…or break it. The other two are the availability of and full design flexibility with attractive transfer techniques such as those just mentioned and the availability of discounts that reduce the value of the transferred asset for gift and estate tax purposes.

As we go to press this month, the latter two factors could be under pressure. As reported in our Aug. 4 alert, Treasury releases proposed regulations to section 2704, proposed regulations under section 2704 would, if finalized, markedly curtail the availability of the discounts that individuals used for decades to enhance the wealth transfer potential of their gifts, GRATs, sales and loans.

Finally, while the proposed regulations do not directly affect the availability of those transfer techniques, a new Democrat administration could renew the current administration’s proposals to limit the effectiveness of those wealth transfer of techniques to move appreciation in an asset’s value to the next generation at low tax cost.   

True, all that potential upheaval is just that, potential. But as a laser-focused James Bond said to Goldfinger, “Can you afford to take that chance?” Perhaps it is better to consider the next few weeks and months as a golden opportunity to take what interest rates and the tax law will give you before it is taken away, potentially of course.


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