Tax efficient planning strategy taking advantage of the short-term AFR

By Chord McLaughlin

Pinnacle Insurance & Financial Services


Few people are aware of the opportunity that exists for the affluent individual considering tax efficient planning strategies. Geared to those individuals 50 years or older having a net worth of $10 million or more, clients can leverage "borrowed" money with specific life insurance solutions and efficiently solve a wide variety of estate planning needs.

Clients can lend money to a trust for one to three years and lock in the short-term Applicable Federal Rate (AFR) of 0.23 percent or lend for three to nine years at the mid-term AFR of 0.93 percent. This solution may show attractive to those individuals who have used up their gift exemptions, don't want to use their gift exemptions, or don't have enough Crummy recipients for an estate planning solution.
  • Owner keeps full control via a promissory note
  • The loan money is moved outside of the client's estate
  • The client maintains access to the loaned money
  • Death benefit is free of income and estate taxes