If appreciating assets are sold to children in return for an installment note the selling parent converts his holdings from an appreciating asset to a fixed value note. The children get the appreciating asset. This technique removes the appreciation from the parent's estate. The sale is financed with the income from the property. If cash can be realized from the property to pay the note and the note interest is at least the applicable federal rate then this technique can be viable. Note that, like a lot of similar techniques, it only works if the property appreciates and produces enough cash to pay the parent.

The property sold may be a minority interest in something and this qualifies for a discount when its value is determined.

The parent will realize capital gain with this technique. Capital gain may be avoided if the sale is made to a grantor trust. (Treated for income tax purposes as owned by the parent).

If the sale is made to the grantor trust no gain is realized, but on the other hand there is no step up in basis for the trust. It takes the grantor's basis.

Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
Ph: 312-782-0844 * Fax: 312-201-1436 * Email: donthompsonlaw@sbcglobal.net