Final Chapter 14 regulations refine estate freeze rules

Article Abstract:

The purpose of IRC 2701-2704 was to rein in abuses of the recapitalization freezes used by some owners of close corporations. The interest transferred is given a low value at the date of the gift but will appreciate during the rest of the owner's life. Section 2701 levies a tax at the time of the transfer, instead of when the transferor dies. The value of the gift is determined by the 'subtraction method' of valuation. Section 2701 simplifies matters as only the family-held interests in the business need to be valued instead of all interests, but in practice the rules may be too complex.

Laws, regulations and rules, Close corporations, Valuation, Closely held corporations, Estate freezing

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Final Chapter 14 regs. clarify GRATS, business planning

Article Abstract:

Estate, gift or generation-skipping transfer tax liability can be an issue when an interest in a trust is transferred. The final regulations implementing IRC 2702-2704 help determine when such a transfer has taken place. If a 'qualified interest' in trust is established, this portion can be subtracted from the amount of transferred property to be treated as a gift. Qualified annuity interests apply to grantor retained annuity trusts and enable their holders to decrease the size of their estates while still enjoying income from the trust for a fixed period of time.

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Sale to a defective grantor trust: an alternative to a GRAT

Article Abstract:

Selling assets to an irrevocable trust and intentionally violating the rules for grantor trusts can provide an appealing estate planning alternative to grantor retained annuity trusts. The intentional violation will result in the grantor being subject to income taxes on both the income and the corpus of the defective trust. The trust will still result in the exclusion of the assets from the estate, and gift and estate taxes can be avoided. The intentional defectiveness of the trust can be accomplished by the grantor retaining the power to substitute assets.

United States, Grantor trusts

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