Kathryn T. Joseph & Associates, Inc.

Changing trust strategies in a high interest environment

Since the financial crisis of 2008, interest rates have remained very low compared to historical levels. However, rates are now starting to rise with no signs of stopping. As a result, portfolios that have performed well in a low-rate environment will need to adjust strategies going forward. Two tools that are particularly advantageous for Ohio families in the current environment are grantor retained annuity trusts (GRAT) and charitable lead annuity trusts (CLAT). 

A GRAT combines a trust with a predetermined period with an annuity that pays the grantor. The annuity value is the client's retained interest, and whatever value remains gets passed on to the trust's beneficiaries. CLATs have a similar structure but the interest payments are sent to a charitable organization instead of the grantor. The goal is to maximize the deduction earned from contributions to charity.

Qualified personal residence trusts (QPRTs) are another instrument that has been out of fashion in a low interest rate environment. With a QPRT, the client's property is transferred into a trust for a certain period of time while they continue to live there. Interest payments get paid to the client while the beneficiaries receive the remainder using the gift tax exemption.

When deciding which types of trusts are best for their unique financial objectives, an estate owner should consult with an attorney who has their best interests in mind. A lawyer may take into account a variety of factors to determine which strategy maximizes earnings and tax savings. Legal counsel will also be responsible for carefully going over paperwork to ensure accuracy and then executing documents in the relevant jurisdiction.

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Kathryn T. Joseph & Associates, Inc.
Executive Commons West
29425 Chagrin Blvd.
Suite 305
Cleveland, OH 44122

Toll Free: 888-335-6650
Phone: 216-245-0504
Fax: 216-765-8817
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