United States: Wealth Management Update

February Interest Rates for GRATs, Sales to Defective Grantor Trusts, Intra-Family Loans and Split Interest Charitable Trusts

The February § 7520 rate for use with estate planning techniques such as CRTs, CLTs, QPRTs and GRATs is 1.2%, which is a slight increase from January's rate of 1.0%. The applicable federal rate ("AFR") for use with a sale to a defective grantor trust, self-canceling installment note ("SCIN") or intra-family loan with a note of a 9-year duration (the mid-term rate, compounded annually) is 1.01%, which is up slightly from the January rate of 0.87%, but still relatively low. Remember that lower rates work best with GRATs, CLATs, sales to defective grantor trusts, private annuities, SCINs and intra-family loans. The combination of a low § 7520 rate and financial and real estate markets which remain undervalued presents a potentially rewarding opportunity to fund GRATs in February with depressed assets you expect to perform better in the relatively near future.

Clients also should continue to consider refinancing existing intra-family loans. The AFRs (based on annual compounding) used in connection with intra-family loans are 0.21% for loans with a term of 3 years or less, 1.01% for loans with a term of 9 years or less, and 2.52% for loans with a term longer than 9 years. Thus, for example, if a 9-year loan is made to a child and the child can invest the funds and obtain a return in excess of 1.01%, the child will be able to keep any returns over 1.01%. These same rates are used in connection with sales to defective grantor trusts.

IRS Issues Revenue Procedure 2013-15

In Revenue Procedure 2013-15, the IRS announced the 2013 inflation adjustments, including the income tax rate schedules, and other tax changes resulting from the American Taxpayer Relief Act of 2012 ("ATRA"). For 2013, the estate tax exemption is $5,250,000, which is an increase from $5,120,000 for 2012. Under ATRA, the estate tax exemption, lifetime gift tax exemption and GST exemption are "unified," and thus, the same amount.

As a reminder, the IRS previously released Revenue Procedure 2012-41, which provides that the annual exclusion for gifts made in 2013 is $14,000, which is an increase from $13,000 for 2012.

Private Letter Ruling 201245004

The IRS ruled that the surviving spouse could disclaim her interest in an Individual Retirement Account ("IRA") even though she had received distributions from the IRA prior to the disclaimer.

The decedent named his spouse as the beneficiary of his IRA. The decedent was receiving required minimum distributions from the IRA prior to his death.

The decedent died survived by his spouse. For two months after his death, the monthly IRA distributions were made and automatically deposited into the surviving spouse's bank account. After those payments were made, the monthly IRA distributions were cancelled. However, the amounts received by the surviving spouse exceeded the required minimum distributions for the year of the decedent's death.

The surviving spouse's attorney-in-fact exercised his authority under the durable power of Attorney and disclaimed the surviving spouse's interest in the balance of the IRA and a proportionate amount of income attributable to such balance.

The IRS ruled that the surviving spouse made a qualified disclaimer, despite accepting automatic distributions which exceeded the required minimum distribution. The IRS cited Revenue Ruling 2005-36, whereby it ruled that receipt of the required minimum distribution constitutes acceptance of that portion of the corpus of the IRA, plus the income attributable to that amount. However, if the beneficiary disclaims the remaining balance of the IRA, then the beneficiary's acceptance of the required minimum distribution does not preclude the beneficiary from making a qualified disclaimer with respect to the balance of the IRA. The IRS found that this case was similar to the one in Revenue Ruling 2005-36.

Estate ofNancy P. Young v. United States (D. Mass., No. 1:11-cv-11829-RWZ, 12/17/12)

In Estate of Nancy P. Young v. United States, the District Court upheld a late-filing penalty against an estate whose accountants advised it to file its estate tax return late, believing there would be no penalty since the full amount of the estate tax had been paid.

The decedent died in 2008. The estate submitted timely requests for extensions of time to file and to pay; both of which were granted. The estate paid the estate tax due prior to the extended payment deadline.

The estate was preparing the estate tax return during 2009, in the midst of the recession. The estate believed that the appraised values of its real estate holdings were substantially higher than fair market value and sought reevaluations.

As the extended estate tax return filing deadline approached, the estate had two options: (1) file the estate tax return with the appraised values, and then file a supplemental return later when the real estate holdings were sold; or (2) wait until the real estate holdings were sold, and then file one estate tax return after the filing deadline.

The estate's accountants believed that since the estate already had paid more than its eventual estate tax liability, there would be no penalty for filing late. Therefore, they advised the estate to file one estate tax return after the filing deadline, as one return (rather than two) would simplify the audit process.

The estate followed the accountants' advice and filed one estate tax return after the filing deadline. The IRS assessed the estate with late filing penalties and interest.

The estate argued that it had reasonable cause for filing late because it relied on expert tax advice.

The District Court found that there was not reasonable cause in this case. Here, the estate was fully aware that it legally was required to file the estate tax return by the applicable deadline. The advice that the estate relied on was that (a) there would be no penalty for late filing, and (b) the late filing would be better for the audit process. The District Court cited precedence which held that reliance is not reasonable cause when the taxpayer is advised that the return is due but that the taxpayer need not comply because no penalty would be imposed. In addition, the reliance is not a reasonable cause when the taxpayer decides that the desire to make the audit process easier is more important that his duty to comply with a known filing deadline.

The estate had an obligation to file a timely return with the best information that it had, and it cannot claim reasonable cause based on advice that it was necessary to wait for complete information before filing the return.


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
Poyner Spruill LLP
Grant Thornton LLP
Proskauer Rose LLP
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
Poyner Spruill LLP
Grant Thornton LLP
Proskauer Rose LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions