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Moving assets into an estate or asset protection plan will require that each transaction be analyzed to determine whether a straight transfer (gift) can be used or if it is necessary to use a sale.

Revocable Trust

Under most circumstances there will be no adverse effect to transferring assets directly into the ownership of a revocable trust. There are some exceptions to this rule but for most transactions re-titling the asset into the trust is all that is necessary.

Entity (LLC/Corporation/Limited Partnership)

When the original owners are receiving the ownership certificates for the entity in exchange for the asset this transaction usually will require no further consideration.

Irrevocable Trust/Gains Tax Programs/Estate Tax Programs

Here is where the movement of the asset may require that the asset be “sold” to the receiving entity. There are a number of different methods that can be used to “sell” the asset that does not cause a cash outflow. One of the programs that was significantly changed in 2006 is a program called the Private Annuity. Prior to October 2006 assets that were moved in this program were given step up basis. Today we can still accomplish step up basis but payment must start on the annuity within 360 days of the closing.

An immediate properly constructed Private Annuity may be issued by anyone or entity. This is a privately issued document that can be used by anyone or entity to purchase an asset. The document is called a Private Annuity. Until a few years ago the payments on a Private Annuity could be deferred. With changes in the Treasury Regulations in late 2006 that was changed and today you must start the annual payments within 360 days of the closing of the sale.
In a recent tax court ruling (2013) - Kite v Commissioner, the tax court ruled that in certain circumstances it is possible to structure deferred annuities. While the Kite case makes for interesting reading and conjecture, at this time we do not feel comfortable using deferred annuities unless the Kite circumstances are present.

A Private Annuity may be amortized over the life expectancy of the seller. The payment will include:

  1. Principal
  2. Interest
  3. A fee that acts as payment for an insurance policy that causes the Annuity to cancel upon the death of the seller.

Installment Sale 

The basic difference between this transaction and the Private Annuity transaction happens when the original owner of the asset dies. In the Private Annuity transaction the Annuity cancels and the new owner takes unfettered titled to the asset. In an Installment Sale any amount still owing on the Installment Sale would still be in the original owner’s estate. 

Self Cancelling Installment Note 

Same as an Installment Sale but because there is a premium added to each payment the note cancels at the death of the buyer. Hence, the note is not in the original owner’s estate. So a Self Cancelling Installment Note looks and acts like a Private Annuity at the death of the original owner. A SCIN requires actuarial calculations. 


In the United States, under existing law, an individual has two separate gifting situations before a gift tax is due: 

  1. For the year 2013 an individual may gift $5,250,000 during their lifetime. We strongly recommend that a gift tax return 709 be filed.
  2. Separate from item 1, an individual may gift $14,000 per year to as many people as they want each year. This amount is indexed and can change from year to year.

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