June 2024 Interest Rates and Recent Developments in Estate Planning

In June 2024, interest rates for various estate planning techniques have seen an increase, impacting strategies such as Grantor Retained Annuity Trusts (GRATs), Sales to Defective Grantor Trusts, Intra-Family Loans, and Split-Interest Charitable Trusts. The Section 7520 rate for these techniques is now at 5.60%, up from 5.40% in May. Additionally, the applicable federal rates (AFR) for sales to defective grantor trusts and intra-family loans have also seen increases across different durations.

In response to these changes, Senators Ron Wyden and Angus King have introduced the Getting Rid of Abusive Trusts Act, targeting Grantor Retained Annuity Trusts (GRATs) with proposed changes to minimum and maximum term requirements, annuity amount restrictions, and gift tax valuation rules. The Act aims to address potential abuses in GRAT planning strategies.

Furthermore, the IRS has issued Notice 2024-35, providing relief for taxpayers who failed to take required minimum distributions (RMDs) for certain inherited retirement accounts subject to the 10-year rule under the SECURE Act. This notice extends relief for taxpayers who missed RMDs in the 2024 tax year, offering temporary reprieve until final regulations are issued in 2025.

In another development, the IRS has adopted new regulations under Reg. § 26.2642-7, outlining procedures for granting extensions of time for late allocations of Generation-Skipping Transfer (GST) Tax exemption and elections. These regulations provide specific standards for determining eligibility for relief and procedural requirements for late allocations or elections.

In a legal case, the Michigan Court of Appeals ruled against a law firm seeking attorney’s fees from an estate due to bad faith conduct by a personal representative and trustee who exerted undue influence on a decedent lacking testamentary capacity. The court found that lack of capacity and undue influence equated to a lack of good faith, denying payment to the law firm.

Lastly, the U.S. House of Representatives passed bipartisan H.R. 6408, suspending the tax-exempt status of organizations supporting terrorism. The bill expands the prohibition of tax-exempt status to organizations providing material support to terrorist groups, giving the Treasury Secretary authority to designate such organizations and allowing for a process to refute the designation or regain tax-exempt status.

These developments in interest rates, estate planning regulations, tax relief measures, legal rulings, and legislative actions highlight the evolving landscape of estate planning and tax compliance in June 2024.