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Wealth Planning in a High Interest Environment

Kyle E. Gallo is an associate at MacDonald Illig Attorneys. He is a member of the firm’s Trusts & Estates and Business Transactions Practice Groups.

Experts are currently predicting the Federal Reserve rate could reach as high as 5 percent during 2023, a rate not seen since 2007. Now that we are no longer enjoying lower interest rates — and interest rates continue to rise, it is important to examine some tax strategies that are better suited for a high interest rate environment.

Intra-Family Loans

Intra-Family Loans are an effective way to transfer money to family members without using your annual gift tax exclusion ($16,000 per person in 2022 and scheduled to increase to $17,000 per person in 2023) or lifetime gift tax exemption ($12.06 million in 2022 and scheduled to increase to $12.92 million in 2023). This strategy can help a younger relative purchase a home, start a business or to invest.

To be a valid loan, the family member must be legally obligated to repay the loan as they would with a loan from a bank. The note must charge interest of at least the applicable federal rate (which is the lowest rate the Internal Revenue Service (IRS) allows), but also can have flexible terms that favor the borrower. If desired the lender can use his annual gift tax exclusion to forgive loan principal. The lender is required to recognize the interest income it receives from the borrower’s payments each year.

In a high interest rate environment and volatile market, the lender relative may prefer a guaranteed rate of return in the form of interest rather than investing in the market. When interest rates are lowered in the future, the loan can be refinanced to adopt the lower rate if that is desirable to the family’s situation.

Qualified Personal Residence Trust (QPRT)

A QPRT is a trust where the Grantor transfers his or her personal residence to a trust. It is a useful strategy to transfer the Grantor’s personal residence to a family member while lowering the taxable value of the gift.

With a QPRT, the Grantor retains the right to reside in the personal residence for a set term. At the end of the term, the personal residence will be distributed to the remainder beneficiary. If the Grantor survives the set term, he or she can then pay rent to continue to live at the personal residence if desired. The rent payments can further reduce the Grantor’s estate. Each year, the IRC 7520 rate determines the value of the right to reside in the personal residence. Each year this value is deducted from the value of the personal residence at the time it was contributed to the trust. As interest rates continue to rise, this strategy is an effective way to reduce the taxable amount of the gift of your personal residence. It should be noted, however, that the Grantor is required to survive the term of the trust. If the Grantor dies before the end of the trust term, then the date of death value of the personal residence will be included in the Grantor’s estate.

Keep in mind that the lifetime gift tax exemption was drastically increased in 2017 with the Tax Cuts and Jobs Act. In 2026, the lifetime gift tax exemption will decrease to $6.4 million. By creating a QPRT before 2026, it allows the Grantor to use the larger lifetime gift tax exemption amount when the personal residence was contributed to the trust rather than the reduced lifetime gift tax exemption amount on the date the remainder beneficiary receives the personal residence.

It is important to remember, however, these are personal financial strategies that depend on your individual circumstances and the goals you wish to accomplish.

For questions about legal matters please contact MacDonald Illig Attorneys at 814/870-7600 or info@mijb.com.

LOGISTICS PLUS IS NAMED TOP 50 LEADING 3PL BY GLOBAL TRADE MAGAZINE

Logistics Plus, Inc. (LP), a leading worldwide provider of transportation, logistics and supply chain solutions, recently announced it has been named one of America’s Top 50 best third-party logistics providers (3PL) by Global Trade magazine. It is the third time in the past four years Global Trade has recognized Logistics Plus as one of its leading 3PL providers. The 2022 leading 3PL providers list was announced in the September-October edition of Global Trade magazine. The article states “Each company recognized on our list has been placed in a specific award category. This is not to suggest that it is the only ability or service that 3PL nails for its customers. For instance, we have Logistics Plus under the 4PL/LLP (Lead Logistics Provider) category this year, but the Erie, Pennsylvaniabased company would have fit just as worthy of our E-Commerce or Technology awards.” Said Jim Berlin, founder and chief executive officer of Logistics Plus. “As a 21st-century logistics company, staying nimble and providing modern solutions to today’s supply chain challenges is what we do. So, being recognized for that is very gratifying.” To learn more, visit logisticsplus.com or see the company profile on page 8.

Logistics Plus, headquartered in Erie, Pennsylvania, was recognized for the third time in four years as a top 50 leading third-party logistics provider by Global Trade magazine.)

VISITERIE UNVEILS NEW PLATFORM TO TRACK VISITOR TRENDS

VisitErie, Erie County’s official destination marketing organization, recently announced that it has partnered with Zartico Destination Operating System®, a national research company that uses cell phone geolocation data to track visitor activity. This state-of-the-art technology gives VisitErie a comprehensive way to research, track, and report on visitor behavior throughout Erie County. Zartico combines the geolocation data with information from hospitality industry benchmarks, visitor behaviors, travel trends, and other market analytics into one complete platform that VisitErie can use to develop marketing campaigns that will target and attract the right audiences. VisitErie can set the reports to compare data sets from year-to-year, monthto-month, by season or by a significant date range (e.g., Memorial Day to Labor Day). For more information, visit VisitErie.com.

Celebrating

Years

For 50 years, L’Arche Erie has provided family-style homes for our Core Members (individuals with intellectual disabilities) and Assistants. Participating in daily life is at the heart of L’Arche communities. We live, work, pray, and celebrate together, sharing our joys and struggles as a family. Our model of sharing life gives priority to relationships of mutuality, which sets us apart from agencies that provide similar services.