July Applicable Federal Rates of Interest

Treasury just published the applicable federal rates of interest for July. Key interest rates used for valuations used in connection with some estate planning strategies follow:

IRC 7520  (120% of the midterm) Rate, that is used to value some interests such as QPRTs, GRATs and other estate planning strategies, is 0.6%.

Short-term Rate (less than 3 years) is 0.18%.

Mid-term Rate (3 years to less than 9 years) is 0.45%.

Long-term Rate (greater than 8 years) is 1.17%.

As was mentioned last month, these low interest rates can be exploited to shift wealth gift tax-free. Example: parents loan $100,000 to a child or grandchild for 8 years and 11 months and charge interest on that loan of 0.45% per year. Child invests the loan proceeds and earns, on average, 4% a year on the investments. There would be no implied gift to the child on that spread (earns 4%yet  pays .45%) despite the low interest rate charged, since the AFR for July was used as the interest rate charged on that intra-family loan.