Code Section 2036 has become one of the IRS’ weapons of choice in attacking family limited partnership (FLP) and other transactions. The provision, its many sub-parts, and the case law interpreting it, are all very complex such that a mere definition could prove more dangerous then helpful in guiding your planning. In brief, 2036 includes…
IDGT stands for Intentionally Defective Grantor Trust. This is a trust which is structured (in terms of the language in the trust document and its operations) so that it will be treated for income tax purposes as a “grantor trust”. A grantor trust is a trust that you set up and transfer property to, but…
This is the process of planning for who should own and operate (and these two issues both need to be addressed, and they are often addressed independently) a business in the event a current owner or manager/executive becomes disabled, dies or retires. A component of this planning when a family or closely held business is…
A commonly used approach for valuing a closely held business in the event of disability, death or retirement is for the business owners (e.g., partners) to set a price for the company in a document called “Certificate of Stated Value”. If anyone dies, etc. during the next year that value governs. This avoids the complexity…
An irrevocable trust that includes a limited power or right given to beneficiaries, named after the court case that sanctioned them, Crummey powers, to withdraw gifts made to the trust up to the amount of the annual exclusion ($13,000 in 2009). The purpose is for the gifts to the trust for the annual gift tax…
This type of trust can also be known as a “Perpetual trust”. It is a trust formed in a state (or foreign jurisdiction) that permits a trust to last forever (or certainly for a very long time period). Technically, the dynasty trusts is to continue as long as feasible without violating the state’s rule against…
An irrevocable trust (cannot be changed) to which generation skipping transfer (GST) tax exemption is not allocated. This trust then will be subject to GST tax if a taxable termination or distribution should occur. A common example is when trusts are structured under your will, GST exemption is allocated to protect trusts to the maximum…
The process of substituting nonvolatile asset for highly appreciated assets inside a GRAT (grantor retained annuity trust). For example, if you establish a two year GRAT to hold financial equities and after 18 months realize a 35% appreciation. In order to lock in that gain, you as the grantor may use a power to substitute…
Split-dollar is an arrangement under which the death benefit and the costs of life insurance are divided/shared between two different taxpayers. Split-dollar can be arranged between a corporation and its executive in a manner that provides for an insurance benefit to the employee; between a shareholder and corporation to provide a benefit to the shareholder;…
Private split-dollar insurance is not a type of insurance but rather a method of structuring the ownership of life insurance on an insured. The concept of “private” split-dollar connotes an arrangement done between individuals and family trusts in contrast to a split-dollar arrangement between an employer and employee which is where the concept of split-dollar…