Two-Year Look-Back Allows Lowest Rate for Transfers to Trusts

February 16, 2011

As a reminder, the 2-month look-back for transfers to trusts must be done by February 28, 2011. By taking the transfer now, you will be taking advantage of the historically low interest rate, which was 1.8% for December 2010. Since December, rates have risen to 2.4% in January and up to 2.8% in February. For charitable trusts, the grantor is permitted a two month "look-back" with respect to the selection of a 7520 rate. The grantor can therefore select the rate in effect during the month in which the valuation date falls, or the rate in effect in either of the 2 preceding months.

One opportunity is to make a transfer to a Charitable Lead Annuity Trust (CLAT). In such a vehicle, an annuity payment is made to charity at least annually for the term of the trust. At the end of the trust term, the remaining assets are distributable to one or more non-charitable beneficiaries (usually family members). CLATs are effective in a low interest rate environment because, if the trust's investment performance exceeds the 7520 rate, the assets remaining in the trust at the end of the term can pass to family members tax-free. The lower the 7520 rate the larger the potential for the tax-free transfer of assets to family members.

Please speak to your Perelson Weiner partner to learn how a CLAT may work for your situation.

Read more:

Return to Newsletter Archive