It is impossible to predict what will happen to the economy and how the Fed will handle interest rates with absolute accuracy.
However, most experts think that over the next few years interest rates will rise.
This can lead to potential problems for some estates, as the Wills, Trusts & Estates Prof Blog points out in "Wealth Transfer Strategies for a Rising Interest Environment."
There are a couple of different types of trusts that can help mitigate rising interest rates.
The first type of trust is called a Grantor Retained Annuity Trust (GRAT). This is an irrevocable trust.
Assets are placed in the GRAT and the settlor of the trust receives a regular annuity from the trust.
When the settlor passes away, all of the assets in the trust, minus interest, pass to the trust beneficiaries, tax free.
The second trust is called a Charitable Lead Annuity Trust (CLAT). This is the same thing as a GRAT, except that the annuity payments go to charity.
When looking at these trusts, the IRS establishes an interest hurdle.
Any growth below the hurdle goes to them. Any growth over it goes to the beneficiaries. That means when interest rates rise, the trust beneficiaries get more.
GRATs and CLATs are complicated trusts that must be handled in specific ways to pass IRS review.
Therefore, if you are interested in them, it is important that you seek the advice of an experienced Cincinnati estate planning attorney.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: Wills, Trusts & Estates Prof Blog (August 23, 2017) "Wealth Transfer Strategies for a Rising Interest Environment."