Highest AFR Since September, 2007 Increases Annuity Payouts for CRTs
The November Section 7520 rate is 5.6%, the highest since a 5.8% rate in September 2007. This higher rate leads to higher payouts for Charitable Remainder Trusts.
The short-term annual AFR bottomed out at .11% in March 2021. During 2022, the rate started at .44% in January and jumped to 4.55% in December and during 2023 it has topped out at 5.30% for November. We have to go back to 2007 to see higher rates.
Farmers who are facing retirement typically have pushed grain sales down the road for many years. Also, the year of their last harvest has all of the costs associated with growing the crop, but most of the crop would be sold in the next year or even several years after.
One option to mitigate the huge tax liability is to spread the sales out over several years. However, this leads to maximum self-employment tax issues and may result in much lower grain prices (or they could be higher too).
The farmer could sell the crop at higher prices on a deferred payment contract, but it is important to make sure that the elevator is financially strong.
An option that we like is to use a charitable remainder trust (CRT).