Intrafamily transfers

Question 1

Installment Sale

Answer 1

Property owner needs income
(PIGS need income)

(Sale of property at FMV in exchange for payments)
1. PV of remaining payments is included in owner’s estate.
2. Property is secured.
3. Gain is capital gain. Do not use if property is subject to recapture.
(1245 depreciation)

Best asset - likely to appreciate

Question 2

Self-canceling installment note (SCIN)

Answer 2

Property owner needs income
(PIGS need income)

1. No value is included in the owner’s estate.
2. Gain is capital gain.
3. Assets can be depreciated.
   Interest can be deducted.
4. Higher payout than installment

Best asset - likely to appreciate

Question 3

Private Annuity

Answer 3

Property owner needs income
(PIGS need income)

(Sale of property in exchange for periodic payments)
1. No value is included in owner’s estate.
2. Property is transferred (exchanged) for a promise.
3. Taxation to the seller
- All the gain which would have been recognized over the life of the annuity now will be taxed in the year in which the private annuity is established.

Best asset - likely to appreciate

Question 4

Grantor Retained Annuity Trust
(GRAT / GRUT)

Answer 4

Property owner needs income
(PIGS need income)

(Irrevocable trusts that allow the grantor to make gifts of property while retaining an income interest.)
1. At the end of a term, corpus is distributed to a remainder person
2. The value of the gift is discounted (due to the retained interest).
3. Owner must outlive term or the asset is brought back into the estate.

Best asset - likely to appreciate

Question 5

Retained Interest Trust (GRIT)

Answer 5

no family members

Property owner needs income
(PIGS need income)

Best asset - likely to appreciate

Question 6

Partnership / S Corporation

(Gifting shares)

Answer 6

Property owner wants to gift assets and/or income to family members

1. Family member receives conduit income. Ineffective if a child is under age 24 (kiddie tax).
2. Business entity must be capital sensitive. Not available if business is service related.

Question 7

Family Limited Partnership (FLP)

Answer 7

Property owner wants to gift assets and/or income to family members

(Gift interests to limited partners to reduce the estate.)
1. Qualifies for various “valuation discounts” allowing for a lower gift tax
2. General partner maintains control.

Question 8

Gift Leaseback

Answer 8

Property owner wants to gift assets and/or income to family members

(Gift of fully depreciated property)
1. Lease payments are a business deduction, income to family member.
2. Do not use if child is underage
24.

Question 9

Qualified Personal Residence Trust
(QPRT)

Answer 9

An irrevocable transfer of a personal residence.)

Property owner wants to gift assets and/or income to family members

1. At the end of a term, the residence is eliminated from the grantor’s estate.
2. The value of the gift is discounted
3. Owner must outlive term, or asset is brought back into Grantor estate