On Thursday, Federal Reserve Vice Chairman Stanley Fischer announced the Fed will likely start raising interest rates around the middle of next year. The Fed has kept rates near zero since 2008 and has nearly quadrupled its balance sheet to more than $4 trillion through a series of bond purchase programs in an effort to push borrowing costs down further and boost hiring. The Fed is expected to wrap up its bond buying program later this month. Minutes of the Fed’s September policy meeting, released on Wednesday, showed several officials worried that troubling global growth and a stronger dollar could undercut the U.S. recovery.
On Wednesday, the Federal Reserve renewed its pledge to keep interest rates near-zero for a “considerable time,” but the Fed also indicated it could raise borrowing costs faster than expected. In a statement after a two-day meeting of its policy-setting Federal Open Market Committee, the Fed announced a further $10 billion reduction in its monthly bond purchases, leaving the program on course to be shuttered next month. The Fed also released a new blueprint for how it plans to exit the extraordinary monetary stimulus it put in place to combat the 2007-09 financial crisis and recession.
The 7520 rate for October is holding steady at 2.2%.
The October 2014 Applicable Federal Interest Rates can be found here.
The 7520 rate for September is holding steady at 2.2%.
The September 2014 Applicable Federal Interest Rates can be found here.
The 7520 rate for August is holding steady at 2.2%.
The August 2014 Applicable Federal Interest Rates can be found here.
The 7520 rate for July is holding steady at 2.2%.
The July 2014 Applicable Federal Interest Rates can be found here.
The 7520 rate for June has decreased to 2.2%.
The June 2014 Applicable Federal Interest Rates can be found here.
The 7520 rate for May has increased to 2.4%.
The May 2014 Applicable Federal Interest Rates can be found here.
The 7520 rate for April has stayed steady at 2.2%.
The April 2014 Applicable Federal Interest Rates can be found here.
The use by the founders of Facebook and Twitter of grantor retained annuity trusts (“GRATs”) to reduce estate taxes has been widely publicized. What many founders and entrepreneurs may not realize, however, is that the same techniques may be appropriate for companies with more modest growth potential and that considering the use of a GRAT at an early stage may be advantageous. GRATs have been discussed previously on the blog here.
In essence, a GRAT is a method to “freeze” the value of an asset at a particular point in time so that the future appreciation of that asset’s value escapes estate tax. A grantor contributes assets to a GRAT in exchange for the right to receive fixed annual payments from the GRAT for a number of years (not for life). The amount of each annual payment includes a return of a portion of the principal amount contributed plus an amount of interest (at a minimum rate required by the Internal Revenue Service). If the sum of the annual payments from the GRAT equal the original principal (valued at the time of the transfer to the GRAT) plus the aforementioned minimum interest, the GRAT is referred to as a “Zeroed Out” GRAT and there is no gift made when the asset is transferred to the GRAT. After the final annual payment is made to the grantor, all assets remaining in the GRAT are transferable to the beneficiaries of the GRAT (children, not grandchildren) without the payment of gift taxes and are not considered part of the grantor’s taxable estate (if he or she survives the term of the GRAT). (more…)