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Trusts and the rise in interest rates

There are various types of trusts that Tennessee residents can include in their estate plans. With the recent rise in interest rates, the grantor retained annuity trust and the charitable lead annuity trust have become increasingly popular with estate owners who want to pass down more to their beneficiaries.

A GRAT is a trust that has been created to function for a specific period of time. It has an annuity that pays the grantor a set amount for every year the trust is in existence. The annuity payout consists of the retained interest, and after the grantor dies, the remaining value will be transferred to the grantor's beneficiaries.

The structure of a CLAT is similar to that of a GRAT, but instead of the payment being made to the grantor, the annuity payment is made to a charitable entity. The main goal of the CLAT is to increase the value of the deduction that can be taken for charitable donations. When the assets are initially placed into the CLAT, the interest rate at the time of the transfer is locked in, and any excess investment performance is passed to the non-charitable beneficiaries without being assessed taxes. The donor is able to claim the charitable deduction for the funds that are transferred to the charity. In cases in which the trust is designed to zero out its assets when it expires, there will be no gift tax due, and the donor will be able to claim a larger deduction.

An attorney who provides estate planning and probate legal services may assist with trust-planning tasks. The lawyer may consider the financial assets and goals of the client before recommending certain types of trusts.

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Stover Law Group
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