It is likely that at some point in the near future, interest rates will rise leading to potential problems for some estates, according to the Wills, Trusts & Estates Prof Blog in "Wealth Transfer Strategies for a Rising Interest Environment."
There are a couple of different types of trusts that can help to mitigate rising interest rates.
The first type of trust is called a Grantor Retained Annuity Trust (GRAT). This is an irrevocable trust.
Assets are placed in the GRAT and the settlor of the trust receives a regular annuity from the trust.
When the settlor passes away, all of the assets in the trust, minus interest, pass to the trust beneficiaries tax free.
The second trust is called a Charitable Lead Annuity Trust (CLAT). This is the same thing as a GRAT, except that the annuity payments go to charity.
When looking at these trusts, the IRS establishes an interest hurdle.
Any growth below the hurdle goes to them. Any growth over it, goes to the beneficiaries. That means when interest rates rise, the trust beneficiaries get more.
GRATs and CLATs are complicated trusts that must be handled in specific ways to pass IRS review.
An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances, which may include protection from higher interest rates.
Reference: Wills, Trusts & Estates Prof Blog (August 23, 2017) "Wealth Transfer Strategies for a Rising Interest Environment."