Sale to Grantor Trust

On behalf of David Whitlock at Whitlock Canter LLC

Paramus Estate Planning Law Firm

A “Sale to a Grantor Trust” is a sophisticated estate planning technique that takes advantage of the difference between certain estate planning tax laws and income tax rules. The Client creates an Irrevocable Trust that is drafted to be excluded from the Client’s estate. Typically, the beneficiaries of the Trust are the Client’s children and/or grandchildren. The Trust contains certain technical provisions that are intended to classify the Trust as a “Grantor Trust” within the meaning of the Internal Revenue Code. A “Grantor Trust” is a trust that is treated as being owned by the creator of the Trust for income tax purposes.

The creator of the Trust sells valuable assets to the Grantor Trust in exchange for a promissory note with an appropriate rate of interest which complies with applicable Internal Revenue Service rules. Since the sale is between the Client and the Client’s own Grantor Trust, the transaction is not recognized for income tax purposes and therefore there is no capital gains tax caused by the sale.

The cash flow from the assets purchased by the Grantor Trust are used to gradually pay off the balance of the promissory note. If the assets in the Grantor Trust appreciate faster than the interest rate on the promissory note, the technique is likely to be successful.

The Sale to the Grantor Trust technique is especially effective when the Client is interested in Generation-Skipping Tax planning.

Whitlock Canter LLC has the experience and knowledge to implement the Sale to the Grantor Trust technique while obtaining the benefit of the Federal Gift Tax Statute of Limitations.