The §7520 Rate Rises to 5.0% in May — The GRAT Window Is Tightening

What Changed

The IRS has published the §7520 applicable federal rate for May 2026 at 5.0%, a meaningful increase from the 4.6% rate that applied in April. This 40-basis-point rise in a single month reverses the declining trend we highlighted in our April §7520 analysis and returns the rate to levels last seen in January 2026.

For estate planning practitioners and families actively evaluating wealth transfer strategies, this is a material development — not because 5.0% is historically extreme, but because the direction of the move changes the tactical calculus for rate-sensitive instruments.

The GRAT Impact: A Higher Hurdle

Recall the fundamental mechanics: a zeroed-out GRAT returns the full contributed value to the grantor as an annuity, discounted at the §7520 rate. The trust's assets must outperform this hurdle for any excess to pass to beneficiaries tax-free.

At 4.6%, a 2-year GRAT funded with $10 million in a diversified equity portfolio needed roughly $940,000 in cumulative outperformance to generate a meaningful remainder transfer. At 5.0%, that threshold increases to approximately $1,020,000 — an 8.5% increase in the required hurdle.

The difference is not trivial for marginal cases. A GRAT funded with a moderately volatile asset — say, a diversified index fund with 15% annualized volatility — sees its probability of successful transfer decline by roughly 3–4 percentage points when the hurdle moves from 4.6% to 5.0%.

Explore the impact: Our GRAT calculator allows you to model different §7520 rate assumptions side-by-side. Compare April's 4.6% against May's 5.0% for your specific asset profile and term length.

For Rolling GRAT Strategies

The impact on rolling GRATs is worth isolating. In a rolling strategy, each successive 2-year GRAT is funded at the prevailing §7520 rate at inception. Families who funded the first tranche in April at 4.6% locked in a favorable hurdle for that specific trust's term. The second tranche, if funded in May, faces the higher 5.0% rate.

This is exactly why our research on rolling GRATs emphasizes the importance of funding decisions — the rate at inception is contractually fixed for the life of that trust. You cannot retroactively adjust.

For families executing rolling strategies with concentrated equity positions, the practical implication is clear: if the position is ready for transfer and the trust documentation is in place, there is a mathematical advantage to funding before rates move further.

The CRT Impact: A Larger Deduction

The §7520 rate and CRT deductions move in the opposite direction from GRATs. A higher rate increases the present value of the charitable remainder, which means a larger income tax deduction for the donor.

For a 10-year CRUT paying 5% annually on a $5 million contribution, the charitable deduction at 5.0% is approximately $1.42 million — compared to $1.31 million at April's 4.6% rate. That's an additional $110,000 in deductible value, which at a 37% marginal rate translates to roughly $40,700 in incremental tax savings.

For families already committed to charitable giving and holding highly appreciated stock, the May rate actually creates a more favorable CRT environment than April.

Explore the numbers: Our CRT calculator models the charitable deduction under different §7520 rate assumptions, including the IRS qualification tests (5% and 10% probability tests) that determine whether a CRT structure is viable.

Rate Trajectory: Context Matters

Month	§7520 Rate	Direction
Jan 2026	5.0%	—
Feb 2026	4.8%	↓
Mar 2026	4.8%	→
Apr 2026	4.6%	↓ (lowest in 2026)
May 2026	5.0%	↑ (back to January level)

The April dip now appears to have been a local minimum rather than the beginning of a sustained decline. The rate is driven by 120% of the federal midterm rate, which reflects Treasury market conditions. With headline CPI surging to 3.3% in March — driven primarily by energy costs from the Iran conflict — and the Fed holding rates at 3.50–3.75%, there is no clear catalyst for rates to decline meaningfully in the near term.

Families who funded GRATs in April captured what may prove to be the most favorable §7520 rate of 2026. Those who delayed face a higher hurdle — and the risk of further increases if inflation remains sticky.

What to Consider Now

For GRAT candidates who acted in April: You locked in 4.6% for the full term of your trust. No action required — your hurdle is contractually fixed.

For GRAT candidates still evaluating: The math at 5.0% is less favorable than April but remains workable for volatile assets. The key question is whether the assets you plan to contribute have sufficient expected volatility to clear the higher hurdle. Our GRAT calculator models this probability using your specific asset volatility and time horizon.

For CRT candidates: The higher rate is actually advantageous — your charitable deduction increases. If you were considering a CRT at April's rate, the May rate improves the economics.

For rolling GRAT strategies: Consider funding the next tranche before the June rate is announced (typically mid-May). If the upward trend continues, each successive tranche faces a higher hurdle.

Our Perspective

At Altar Rock, we view §7520 rate movements as tactical inputs to a structural strategy — not as timing signals. The fundamental case for GRATs and CRTs depends on the client's asset profile, transfer objectives, and planning horizon, not on any single month's rate.

That said, we are intellectually honest about the math: 4.6% was more favorable than 5.0% for GRATs, and 5.0% is more favorable than 4.6% for CRTs. The families who benefit most from rate-sensitive instruments are those with the infrastructure already in place — trust documents drafted, assets valued, liquidity analyzed — so they can act when conditions align rather than scrambling to prepare after a favorable window has passed.

Structural discipline is about preparation, not prediction. The rate will move again next month. The question is whether you'll be ready.