Wealth Management Update - November 2019

November 2019 Interest Rates for GRATs, Sales to Defective Grantor Trusts, Intra-Family Loans and Split-Interest Charitable Trusts

The November Section 7520 rate for use with estate planning techniques such as CRTs, CLTs, QPRTs and GRATs is 2.0%, which is up slightly from the October rate of 1.8%. The November 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 having a duration of 3 to 9 years (the mid-term rate, compounded annually) is 1.59%, up slightly from 1.51% in October.

The low Section 7520 rate and AFRs continue to present potentially rewarding opportunities to fund GRATs in November with depressed assets that are expected to perform better in the coming years.

The AFRs (based on annual compounding) used in connection with intra-family loans are 1.68% for loans with a term of 3 years or less, 1.59% for loans with a term between 3 and 9 years, and 1.94% for loans with a term of longer than 9 years. With the mid-term rate now less than the short-term rate, clients will likely prefer the mid-term rate in their estate planning transactions.

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 1.59%, the child will be able to keep any returns over 1.59%. These same rates are used in connection with sales to defective grantor trusts.

Amendment to California Family Code Section 1615 - Seven Day Waiting Period Before Signing Premarital Agreement

Existing California law establishes conditions under which a premarital agreement is not enforceable, including when the party against whom enforcement is sought proves that party did not execute the agreement voluntarily. California Family Code Section 1615 currently deems that a premarital agreement was not executed voluntarily unless the court finds, among other things, that the party against whom enforcement is sought (1) was represented by independent legal counsel at the time of signing the agreement or was advised to seek legal counsel and waived representation and (2) had at least seven days between being first presented with the agreement and being advised to seek counsel and the time the agreement was signed.

California Family Code Section 1615(c) is amended so that with respect to a premarital agreement executed on or after January 1, 2020, the party against whom enforcement is sought must have had not less than...