By Alan S. Kufeld, CPA, Partner
Key Takeaways
- The One Big, Beautiful Bill Act (OBBBA) permanently increases estate, gift and generation-skipping transfer tax exemptions to $15 million per individual and $30 million per married couple starting in 2026.
- Higher interest rates make certain strategies like Charitable Lead Annuity Trusts more effective, while reducing the efficiency of Grantor Retained Annuity Trusts and impacting intra-family loan dynamics.
- Now is an opportune time for high-net-worth individuals to revisit estate plans, evaluate wealth transfer strategies and consider refinancing existing trusts in light of the new law and rate environment.
Estate planning is not a static event — it’s a dynamic process shaped by personal circumstances, economic cycles and legislative changes. With the passage of the “One Big, Beautiful Bill Act” (OBBBA), combined with elevated interest rates, high-net-worth individuals should take a fresh look at their wealth transfer strategies. While certain techniques may be less favorable in today’s climate, others are newly advantageous, offering timely opportunities to preserve family legacies and mitigate estate tax exposure.
Strategies that are sensitive to interest rates — such as Grantor Retained Annuity Trusts (GRATs), Charitable Lead Annuity Trusts (CLATs), and intra-family loans — respond differently in a rising-rate environment. With new legislation now enacted and interest rates trending above historical lows, it is essential to reassess estate planning structures originally designed for a low-rate climate. The following provides an overview of how these techniques are currently performing and outlines key adjustments families may want to consider in response to this evolving landscape.
Looking Ahead: Estate Planning Under the New Law
OBBBA, enacted on July 4, 2025, increased the lifetime estate, gift and generation-skipping transfer (GST) tax exemptions, which are permanently increased to $15 million per individual and $30 million per married couple, indexed annually for inflation. These thresholds replace the previously scheduled sunset of the Tax Cuts and Jobs Act provisions and are effective January 1, 2026.
With these provisions now finalized, high-net-worth individuals should revisit their existing estate plans to ensure they remain aligned with the updated federal transfer tax laws. While the urgency to complete significant lifetime gifts before year-end has now subsided, this is still an opportune time to evaluate your estate planning strategy — particularly in light of the current elevated interest rate environment, which may impact the effectiveness of certain wealth transfer techniques.
Intra-Family Loans
When structured properly, intra-family loans offer a way to transfer wealth by allowing assets to appreciate above the IRS-mandated Applicable Federal Rates (AFRs). Because commercial lending rates are generally higher than AFRs, these loans remain a sensible option in many situations.
The AFR sets the minimum interest rate required to avoid classification as a taxable gift. A loan with little or no interest rate can still be deemed a gift by the IRS. AFRs vary based on the loan terms. As of June 2025, the key rates are:
- Short-Term AFR (loans 3 years or less): 4.00%
- Mid-Term AFR (4-9 years): 4.07%
- Long-Term AFR (more than 9 years): 4.77%
With 30-year fixed mortgage rates nearing 7%, intra-family loans using lower AFRs remain an attractive strategy. While higher AFRs increase the required interest on these transactions — reducing the spread between the loan rate and asset growth — these arrangements can still deliver meaningful estate planning benefits, particularly for families with reliable income-producing assets. When paired with the newly increased lifetime exemption thresholds under OBBBA, these loans remain a tax-efficient way to shift wealth across generations.
Charitable Lead Annuity Trusts (CLATs)
A CLAT is an irrevocable trust that provides a fixed annuity to one or more charitable organizations for a set term. After that, remaining trust assets pass to non-charitable beneficiaries — typically family members. If structured properly, the donor may receive a charitable or estate tax deduction based on the present value of the charitable interest, calculated using the Section 7520 rate at the time of funding. CLATs become more effective as interest rates rise. The higher the Section 7520 rate, the greater the value of the charitable annuity — resulting in a lower taxable gift for the remainder beneficiaries. Since the Section 7520 rate is 120% of the AFR, it increases in tandem with interest rates, enhancing the overall benefit of the CLAT. These benefits can be amplified when aligned with the new elevated exemption thresholds under OBBBA.
Grantor Retained Annuity Trusts (GRATs)
From a wealth transfer perspective, GRATs become less efficient in a high-interest rate environment. Their success depends on the trust assets outperforming the Section 7520 rate, which serves as the minimum threshold for gift-tax-free appreciation. As rates rise, this hurdle becomes harder to clear, reducing the tax-free value that can be transferred. That said, GRATs can still be advantageous when funded with assets expected to experience strong growth or high volatility.
Refinancing GRATs in a Shifting Rate Environment
When the Section 7520 rate decreases, refinancing an existing GRAT can improve the efficiency of wealth transfer by lowering the hurdle rate the trust assets must exceed to produce a tax-free gift. By rolling the remaining GRAT assets into a new GRAT structured under the lower rate, the grantor may capture additional appreciation for beneficiaries with reduced gift tax exposure. This approach is particularly effective when market conditions or interest rates shift significantly during the GRAT term. Timely refinancing can help lock in more favorable valuation assumptions and enhance overall estate planning outcomes — especially when coordinated with the new exemption amounts and rules enacted under OBBBA.
Contact Us
Our professionals are here to provide personalized guidance tailored to your estate planning goals. For questions about the strategies discussed in this article, contact your PKF O’Connor Davies client service team or:
Alan S. Kufeld, CPA
Partner
akufeld@pkfod.com