Category Archives: Asset Sales to Grantor Trusts

Rev. Rul. 85-13: Is There a Limit to Disregarding Disregarded Entities?

I.     Introduction Although the federal estate tax is not extinct, with the combined marital exemption now north of $10 million, it is an endangered species. Recently, Governor Cuomo signaled his intent — likely to be affirmed by State Republicans — … Continue reading

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Asset Sales to Grantor Trusts: Antidote to New Estate Tax?

PDF:   Sales of Assets to Defective Grantor Trusts I.     Introduction   Asset sales to grantor trusts exploit income tax provisions enacted to prevent income shifting by capitalizing on different definitions of “transfer” for transfer and income tax purposes. The objective … Continue reading

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INSTALLMENT SALES OF ASSETS TO “DEFECTIVE” GRANTOR TRUSTS

Installment sales of assets to grantor trusts indirectly exploit income tax provisions enacted to prevent income shifting at a time when trust income tax rates were much lower than individual tax rates. Specifically, the technique capitalizes on different definitions of “transfer” for transfer tax and grantor trust income tax purposes. The resulting trusts are termed “defective” because the different definitions of “transfer” result in a serendipitous divergence in income and transfer tax treatment when assets are sold by the grantor to his own grantor trust. Continue reading

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INSTALLMENT SALES OF ASSETS TO GRANTOR TRUSTS

Installment sales of assets to irrevocable grantor trusts is one of the most powerful estate planning techniques available today. Sales to “intentionally defective” irrevocable grantor trusts capitalize on different definitions of “transfer” for income and transfer tax purposes. Following such a sale, the grantor reports income tax on trust income. However, the grantor no longer owns the assets for gift and estate tax purposes. Therefore, the trust assets (and appreciation) will be removed from the grantor’s gross estate. Assets sold to the trust may consist of stock in a closely held business, real estate, marketable securities, or limited partnership interests. The trust may even hold S Corporation stock without jeopardizing the election. Continue reading

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Asset Sales to Grantor Trusts Discussed at ABA (June 2000)

[Louis A. Mezzullo, Esq., of Mezzullo & McCandlish, Richmond, Va., presented a paper discussing installment sales to grantor trusts at the ABA Tax Section’s midyear meeting in San Diego.] Generally, the grantor of a trust who retains the right to … Continue reading

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