Intra-Family And Other Business Transfer Techniques - Bargain Sales, Gift or Sale Leaseback, Intentionally Defective Grantor Trust
The bargain sale is the sale of an asset for less than full market value at a "bargain" price, usually made to family members or related parties.
Characteristics of a Bargain Sale:
- Considered part sale and part gift.
- Sales price less sellers basis = taxable gain to seller.
- FMV of property less consideration given = gift value for tax.
- Property is NOT included in the seller's estate at death.
- Taxable gift is added back to seller's taxable estate.
Gift or Sale Leaseback
The gift or sale leaseback is a technique commonly used by older family members where they gift or sell the business or property to a younger family member. In turn, the asset is removed from the parent estate and they then lease the item from the younger family member to continue to run the business.
Properties of a Leaseback option:
- Gift tax is required if asset exceeds the annual exemption amount (gift leaseback).
- Lease payments are tax-deductible to the senior family member.
- Lease payments received are taxable to the junior family member (unearned income).
- Enforceable written agreement between the two parties.
Intentionally Defective Grantor Trust
An intentionally defective grantor trust (IDGT) has long been used to freeze the value of an asset for estate tax purposes while transferring assets out of the estate free of gift tax. An IDGT is a complete transfer to a trust for transfer tax purposes but an incomplete, or "defective," transfer for income tax purposes. Because the trust is irrevocable for estate and gift purposes and the grantor has not retained any powers that would cause estate tax inclusion, the future value of the assets transferred is removed from the grantor's gross estate on the date of the trust's funding.
The trust is irrevocable, but the grantor retains certain other powers and is treated as a grantor trust for income tax purposes. As a result, the grantor, though not a beneficiary, is taxed on all of the trust's income, even though they are not entitled to any trust distributions.Family Limited Partnership or Limited Liability Company
- IDGT receives the gross income generated.
- Income accrues for the trust beneficiaries.
- Assets are removed from the estate of the grantor.
- Grantor retains control.
- Future appreciation of the asset is removed from the estate.
- No gift tax is incurred.
Investing BasicsBuying below the margin of safety minimizes the risk to the investor.
Mutual Funds & ETFsFind out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
Mutual Funds & ETFsFind out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
Mutual Funds & ETFsFind out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
Mutual Funds & ETFsFind out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
Mutual Funds & ETFsFind out about the Guggenheim BulletShares 2018 High Yield Corporate Bond ETF, and get information about this ETF that focuses on high-yield corporate bonds.
Mutual Funds & ETFsFind out about the PowerShares DWA SmallCap Momentum Portfolio ETF, and explore detailed analysis the fund's characteristics, suitability and recommendations.
Mutual Funds & ETFsLearn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
Mutual Funds & ETFsFind out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
Mutual Funds & ETFsLearn about the Vanguard Total World Stock exchange-traded fund, which invests in stocks located in numerous countries with a high level of diversification.
The amount of risk that an insurance company retains after subtracting ...
Coverage that provides financial protection to investors, financial ...
The maximum loss from a peak to a trough of a portfolio, before ...
The absolute level of a fund's investments.
A technique used by insurance companies to calculate loss reserves.
The financial benefit that a risk-taking activity will bring ...
The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>
The retail sector consists of companies operating in multiple industries such as specialty retail, general retail, food and ... Read Full Answer >>
Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>