Do you have questions around the process of picking a trust to use for estate planning or asset protection planning purposes? Our Pasadena estate law group can help you discuss the options and arrive at a decision around the right tools for you.
An installment sale to an intentionally defective grantor trust sounds like a very complicated estate planning strategy and it might not make sense for everyone. This strategy is indeed more complex than what’s known as an intra family loan. With an intra family loan, the difference in rates for assets that grow beyond the loan’s interest rates will favor the borrower on a gift tax free basis.
The benefits of an intentionally defective grantor trust, however, might be even bigger since the assets inside the trust can grow on an income tax free basis. One other option to potentially explore with the support of an estate planning attorney is a grantor retained annuity trust. This is helpful when interest rates are at their all-time lows. Inside a GRAT, assets are transferred inside the trust and an annual annuity payment is retained for a specific number of years.
Once that term has expired, whatever assets are still inside the trust are able to be passed along to beneficiaries without further estate taxes being applied. At the time that the GRAT is funded is an important milestone because annuity payments are set by the IRS at that time. Low annuity payments can increase your chances that the GRAT’s assets will appreciate beyond the interest payment, meaning a bigger gift tax free distribution to the trust beneficiary.
Schedule a consultation with a knowledgeable estate planning lawyer to learn more about how this can help you.