How interest rates create estate-planning opportunities.

By Tresp, Day & Associates · January 5, 2023

Estate planning is often treated as a set-it-and-forget-it exercise. But some of the most effective wealth-transfer strategies are sensitive to interest rates, because the IRS uses published benchmark rates to measure the value of gifts and transfers. When rates move, the math behind these techniques moves with them.

Strategies that favor lower rates

When benchmark rates are low, techniques that transfer future appreciation cheaply become especially powerful, grantor retained annuity trusts (GRATs), intra-family loans, and sales to grantor trusts let you move growth to the next generation with minimal gift-tax cost.

Strategies that favor higher rates

When rates are higher, other tools become more attractive, charitable remainder trusts (CRTs) and qualified personal residence trusts (QPRTs), for example, can produce better results in a higher-rate environment.

The takeaway: review when rates move

Because the ideal technique depends on the rate environment, a plan built in one climate may be leaving value on the table in another. Reviewing your estate plan when rates shift, and coordinating with your tax advisor, lets you capture the opportunity of the moment. Tresp, Day & Associates helps families match strategy to the environment.