Limp money rates. Sour real estate. The specter of estate tax reform. Which presently available ploys might a new president kill in as little as one year from today? These and other goings-on have brought certain planning strategies to the fore. Here are sketches of seven that may make sense for clients right now.

No. 1: Spread Real Estate To Family

Properties that have dropped in value, be they residences, income-generating properties or even vacant land, make great gifts, says estate-planning attorney Arnold Kassoy, a partner at Manatt, Phelps & Phillips based in the firm's Los Angeles office. "The lower the appraised value of the gift, the less gift-tax consequence there is."

Gifting can take numerous forms. The client could give property to his adult child outright. Or to make the numbers really sing, he could transfer an undivided fractional interest and discount it, Kassoy says. An undivided interest makes the child a tenant-in-common with his parent. This legally cumbersome arrangement limits the gift's marketability in the child's hands and thus renders its true value less than its pro rata equivalent.

Suppose a couple intends to transfer an apartment complex recently appraised at $2.5 million. You should further assume that each spouse owns a 50% interest in the property. "Each spouse can make a gift of their $1.25 million undivided interest to the children and discount it to $1 million, maybe less," Kassoy says. This consumes both spouses' lifetime gift-tax exemptions, yet they have divested themselves of an asset that may have been worth $3 million a year ago-and which someday could be worth much more.

No. 2: Put The Home, Or The Ranch, In A QPRT

A qualified personal residence trust is useful for removing a home from the estate. In the typical transaction, Kassoy explains, the client transfers his primary or secondary residence to this irrevocable trust while continuing to use it. At the end of the trust term, which the client establishes up front, the residence exits his estate as it passes to the remainder beneficiaries-usually the children or a trust for them.

This constitutes a gift. Its value depends on the grantor's age and trust term, on the appraised value of the home at the start of the term and on other variables. A lower appraisal lowers the gift element, Kassoy says. We'll skip the math.

Also, the longer the term and the older the grantor is when the trust is set up, the smaller the gift. But low interest rates make the gift larger because of an annoying present value calculation. "If rates tick back up later this year because of inflation while housing remains soft, that might be the optimal time to do a QPRT," Kassoy says.

Here, too, undivided interests can garner discounts. "Husband transfers his 50% undivided interest in the Aspen ski chalet to his QPRT. Wife transfers her 50% interest to her trust. You discount both gifts for lack of marketability," Kassoy explains.

Drawbacks? The gift isn't completed until the term is over. Until then, the property remains part of the client's estate. For grantors who do survive the term, the issue becomes surrendering control of the property to the heirs. That's why a treasured vacation home the family wishes to keep can make a better QPRT holding than the client's primary residence.

Like many practitioners, Kassoy sees a per-person death-tax exemption of roughly $5 million in America's future. "I'm mentioning QPRTs to couples with net worths exceeding $10 million, where the residence might be worth $2 million," he says. But for significantly larger estates, other strategies discussed below may prove more helpful.

Many advisors believe now is a good time to lock in low interest rates on related-party transactions, which must utilize the Internal Revenue Service's Applicable Federal Rate and Code Section 7520 rate to avoid unintended gift-tax consequences. Deals can even be timed, to a certain extent, to get the lowest rate available.

A window opens on about the 19th of every month. That's when the IRS announces the following month's rates. Las Vegas estate-planning attorneys Oshins & Associates were all set to execute 20 complex transactions for clients in late December when ... January's numbers showed up 25 to 80 bps skinnier!

"That put the brakes on most of the transactions until the new year," says Steve Oshins, the law firm's managing partner. "Our transactions are generally at least $5 million, so a change like that in the interest rate can have a huge impact."

No. 3: Lend To Family

Consider the effect of a parent lending, oh, $1.5 million to a child to invest for nine years. Further assume that the loan closed in January, when the midterm AFR (used for loan terms longer than three years but not more than nine) was 3.58%, its lowest since late '05.

The result: The parent holds a $1.5 million promissory note growing by 3.58% annually, while the child now has $1.5 million invested at a much higher rate potentially-say 10%. The alternative would be that the parent purchases a 10%-yielding investment himself and owes estate tax on the profits at death. The loan, meanwhile, enables the family to shift the spread between the two rates-in this case, 6.42% per annum, before income taxes, on $1.5 million-from the parents to the children, free of transfer taxes.

"The lower the AFR, the greater the opportunity to shift more wealth to the next generations," points out Katie Colombo, an attorney at Oshins & Associates. Clients with existing loans may be able to refinance them at current rates.

This arbitrage is referred to as an "estate freeze." Growth in the parent's estate is frozen at the IRS rate, it is said. The tactic can be spun myriad ways. For instance, a client can create a dynasty trust and lend it money to start a business, Colombo says. "All the growth in the value of the business would be outside the client's estate and pass estate and generation-skipping transfer tax-free."

No. 4: Sell Assets (Even A Home)
To A Defective Trust

Selling property to an intentionally defective irrevocable grantor trust is another estate-freeze technique enhanced by modest AFRs. "This transaction works when the trust assets outperform the AFR," says Tom Hakala, a managing director at Wilmington Trust FSB in New York.

Assuming the client doesn't already have a grantor trust, he creates one and gifts it seed money-perhaps 10% of the value of the property that will be sold to it, although some experts believe a smaller percentage is acceptable, Hakala says. Next, the sale occurs, immediately removing the assets from the client's estate, but not for cash. Instead, the client receives a note from the trust, which must periodically pay the client AFR interest. Often the property is cloaked in a family limited partnership or limited liability company, and the entity's non-controlling units are sold to the trust at a discount for lack of control, liquidity and marketability.

Attorney Gideon Rothschild is using this technique to remove a $5 million residence from a client's $30 million estate (although he isn't wrapping the home in an entity because that can lead to bad consequences). "The client can transfer $500,000 to the trust to use some of his lifetime gift-tax exemption, then sell the house to the trust for $5 million and take back a note at, say, 4% interest," says Rothschild, a partner at Moses & Singer LLP in Manhattan.

Once the trust owns the home, the client must pay it fair market rent to live there. "If a monthly rent of $20,000 is justified and the annual interest that the trust pays the client is $200,000 (4% AFR times the $5 million note principal), then the trust will grow by $40,000 each year ($240,000 rent received, minus $200,000 interest paid), which is shifted to the next generation free of gift and income taxes," Rothschild says. Should rents rise in the future, the trust could net even more tax-free cash annually.

No. 5: Transfer Wealth To A GRAT

Placing assets in a grantor-retained annuity trust transfers their title to the remainder beneficiaries. That is a gift, and a low Section 7520 rate lowers its value, all else being equal.

The GRAT pays the client a fixed income for a term established up front. "If the client lives until the end of the term, the GRAT assets are not counted in his estate," says Gregg Parish, an estate-planning professor at the College for Financial Planning. Further, if the assets appreciated faster than the IRS rate that was in effect when the transaction closed, the excess shifts to the heirs free of further gift or estate tax.

"But because the client must survive the term to achieve these benefits, setting the right length is critical," Parish cautions.