smart spending

7 ways to pounce on low interest rates

Give money away
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Give money away

If you are fortunate enough to have extra money to give away, low interest rates make it easier to be generous and charitable, says Alexey Bulankov, a financial adviser and CFP with McCarthy Asset Management Inc. of Redwood Shores, Calif.

"This environment of low rates and poor economic conditions, combined with a massive intergenerational wealth transfer and looming estate, gift and income tax hikes create a once-in-a-lifetime opportunity to give, borrow, move money, be charitable and create a legacy," Bulankov says.

Look into strategies such as a charitable lead annuity trust, or CLAT, which combines philanthropic with wealth-shifting goals by allowing the grantor to put money into a trust that pays out to a charity during the life of the grantor. At the end of the grantor's life, the remainder is passed to beneficiaries. CLATs work well in a low interest rate environment. If the performance of the investments exceeds the "Section 7520" interest rates -- used to value certain charitable interests in trusts and published monthly by the IRS -- then the excess earnings at the end of the term pass to the beneficiaries tax-free, Bulankov says.

"The lower the 7520 rate, the larger the potential gift to the family or heirs," he says.


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