Rising interest rates can make certain estate plans less effective. When rates rise, the “hurdle” rate increases. That interest rate, currently around 2%, has been quite low for some time. However, with all the predictions that interest rates will begin to rise again, so will the hurdle rate. What does this mean for your estate plan? If you make loans to your children or grandchildren the interest rates will need to be higher than currently required. If you use a Grantor Retained Annuity Trust to shift appreciating assets to the next generation this will become harder to do successfully as interest rates rise. That’s because only the appreciate in excess of the hurdle rate is passed on tax free. The higher the rate, the harder it is to get over. The same is true for certain charitable trusts. So if you’ve put off updating your estate plan, now may be the time dive in to make the most of current laws, tax and interest rates.
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