Section 7520 Rate is at Historical Low

The Section 7520 rate is .60% for July of 2020, which is at an all-time low. The Section 7520 rate is used to calculate the deduction for charitable gifts to a charitable remainder trust (CRT) or a charitable lead trust (CLT). Unlike the CRT, the CLT is more beneficial to the donor when the Section 7520 rate is low. In addition, the taxable gift under a wealth transfer strategy known as a grantor retained annuity trust (GRAT) also is calculated using the Section 7520 rate.

In a GRAT, the donor transfers assets to an irrevocable trust and retains an annuity back from the trust each year. Because the Section 7520 rate is so low, the value of the interest that must be returned to the grantor in the form of an annuity is very low. Any appreciation in excess of the annual hurdle rate of .60% goes to the donor’s beneficiaries at the end of the GRAT term estate tax-free.

Therefore, the lower Section 7520 rate creates numerous opportunities for charitable giving and wealth transfer. Coupled with the current reduced valuation of assets and the possibility of unfavorable tax law changes coming sooner rather than later, this is a very good time to act and review your estate plan.

Because of this unique economic situation, it would be beneficial to schedule an appointment with one of our professionals. We are here to work with you and your advisors to help craft the correct solution for you and your family.