Thursday, December 23, 2010 NEET Tips
NEET Tips answers questions posed online to the NEET website
What is the “Applicable Federal Rate”? Why is it important in estate planning?
The Applicable Federal Rate (AFR) refers to three rates determined by the U.S. Treasury based on debt instruments of varying maturities. The federal short-term rate applies to debt instruments with a term of three years or less; the federal mid-term rate applies to terms of more than three years, but not over nine years; and the federal long-term rate applies to terms of more than nine years.
The AFR comes into play in estate planning in many areas, most of which benefit from a low interest-rate environment. These include low-interest intra-family loans, installment sales of a closely held business or family limited partnership, grantor retained annuity trusts (GRAT), charitable lead annuity trusts (CLAT), private annuities, and self-cancelling installment notes (SCIN). In late 2010, AFRs are at historically low rates, making many of the above estate planning strategies worth investigating. |