The Internal Revenue Service on July 15 published the interest rates that will govern wealth-transfer valuations in August, and the headline figure did not move. Revenue Ruling 2026-13 sets the Section 7520 rate at 5.20%, the same level the agency set for July in Revenue Ruling 2026-12. For families using trusts to shift appreciation to heirs or to charity, a second month at that level makes the relative strengths and weaknesses of each technique easier to see.
What changed, and what did not
The Section 7520 rate is the discount rate the IRS requires when valuing annuities, life estates, terms of years, remainders and reversions. It drives the gift or charitable-deduction value of nearly every split-interest arrangement. Because it is fixed each month, planners often describe it as a hurdle: assets placed in certain trusts must outperform it for the plan to pass wealth efficiently.
The August ruling also lists the applicable federal rates used for intra-family loans and installment sales. The annual short-term rate is 4.10%, the mid-term rate is 4.35% and the long-term rate is 4.92%. Those loan rates sit well below the 5.20% hurdle, a spread that matters when families compare trust strategies against simpler lending arrangements.
Who is affected
The rate matters most to households with estates large enough to use grantor retained annuity trusts, charitable remainder or lead trusts, and qualified personal residence trusts. It also matters to anyone who has already signed documents for a trust funded this summer, since the valuation locks in the rate for the month of the transfer. For charitable gifts, the tax code generally allows a donor to choose the rate for the month of the gift or either of the two prior months, a flexibility that has less value when the rate is flat.
The after-tax math
A grantor retained annuity trust returns a stream of payments to its creator, computed so that the gift at funding is close to zero. Whatever the assets earn above the 7520 rate passes to beneficiaries free of gift tax. A higher rate therefore shrinks the leftover.
Example, illustrative round numbers, fees and taxes on trust income ignored: a founder places $10 million of stock in a two-year trust, and the stock grows 8% a year.
| Assumed 7520 rate | Annual annuity payment | Left for heirs after two years |
|---|---|---|
| 5.20% (current) | About $5.39 million | About $446,000 |
| 3.00% (hypothetical) | About $5.23 million | About $794,000 |
The same 8% return transfers roughly 44% less at today's rate than it would at a hypothetical 3% rate. The trust still works if the assets outperform, but the margin for error is thinner.
Other techniques move the opposite way. In a charitable remainder annuity trust, the donor or family receives a fixed annuity, and the charity takes what remains. The IRS rules require the annuity to be at least 5% and no more than 50% of the initial trust value, and the charity's remainder must be worth at least 10% of the property contributed. A higher discount rate lowers the present value of the annuity stream, which raises the calculated value of the remainder. That can lift the income tax deduction and make it easier for a larger annuity or longer term to clear the 10% test.
A qualified personal residence trust behaves similarly. The owner keeps the right to live in a home for a set term, and the gift is the value of what heirs receive afterward. When the rate is higher, the retained right is valued more generously, so the taxable gift of the remainder is smaller. Charitable lead annuity trusts, which pay charity first and heirs later, lose ground for the same reason grantor retained annuity trusts do.
Moves to discuss with your advisor
- Whether a planned annuity trust still makes sense at a 5.20% hurdle, or whether a shorter rolling structure better fits volatile assets.
- Whether an intra-family loan at the 4.35% mid-term rate offers a lower bar than a trust tied to the 7520 rate.
- Whether a charitable remainder trust funded now would produce a larger deduction than one funded after rates fall, and which month's rate to elect.
- Whether a residence trust fits a family's plans for the home, given that the grantor must pay fair rent if they stay past the term.
These trade-offs depend on asset type, health, family goals and state law, and are worth reviewing with an estate attorney and CPA before funding.
What to watch
The IRS publishes the next month's rates around the middle of each month. The rate is tied to Treasury yields, so any sustained move in intermediate-term bond markets will shift the balance again. Families weighing an annuity trust against a charitable or residence trust may find that the calendar, not just the asset, decides which technique looks better on paper.
Sources
- First reported Rev. Rul. 2026-13: Applicable federal rates for August 2026 — IRS
- Rev. Rul. 2026-12: Applicable federal rates for July 2026 — IRS
- Charitable remainder trusts — IRS
- IRS roundup: Tax Court rulings, exam trends, and recent guidance — McDermott Will & Schulte
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
