Irrevocable Non Grantor Trusts

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Irrevocable Non-Grantor Trusts in Reston, VA

Is An Irrevocable Non-Grantor Trust Right for You & Your Family?

As an alternative to a sale of an appreciated asset to an intentionally defective grantor trust (IDGT) or a self-cancelling installment note, you could sell an appreciated asset to children directly or to a non-grantor trust for the benefit of children in a taxable installment sale.

The sale would be made in exchange for a promissory note bearing interest only, with principal being due on the maturity date. The maturity date typically must be no more than 20 years into the future, and the interest rate would be based upon the IRS’ long-term applicable federal rate. The note may or may not be secured but would need to be enforceable under local law.

If the purchaser is a related party (including your children or a non-grantor trust for their benefit), the purchaser must hold onto the asset for at least two years for you to get installment sale treatment. Moreover, to avoid an interest charge on the taxes deferred in the installment sale, you would need to sell less than $5 million in assets ($10 million for taxpayers who are married and file joint returns) in any one taxable year. Any interest received from the purchaser will be taxable at ordinary income tax rates, but the principal will be taxed as long-term capital gains only when principal payments are received.

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