The Highs and Lows of Rising Interest Rates

As the Section 7520 rate increases, the present value of annuity or unitrust interest declines and the present value of the remainder interest increases. The opposite occurs when the Section 7520 rate decreases.

The annuity or unitrust interest will have a smaller present value, and the remainder interest a larger present value. The reason for the difference is that a higher Section 7520 rate presumes a higher rate of return that will be used to pay the annuity or unitrust interest and a less likely chance that principal will be needed for such payments.