Kenny is considering selling the Bungalow so he can spend more time with Melissa
ID: 2797566 • Letter: K
Question
Kenny is considering selling the Bungalow so he can spend more time with Melissa. Kati has worked at the Bungalow for years and has offered to buy the business for a price Kenny considers reasonable and he needs the cash flow but Kenny recognizes if Kati waited until his death, she would inherit the Bungalow. Given these facts, which transfer method should be used to transfer the business to Kati?
A) Grantor Retained Annuity Trust
B) Self-Cancelling Installment Note
C) Family Limited Partnership.
D) Installment Sale
Explanation / Answer
A Grantor Retained Annuity Trust (GRAT)
Grantor Retained Annuity Trust (GRAT) is an estate planning technique that minimizes the tax liability existing when intergenerational transfers of estate assets occur. Under these plans, an irrevocable trust is created for a certain term or period of time.
Under these plans, the annuity payments come from interest earned on the assets underlying the trust or as a percentage of the total value of the assets. If the individual who establishes the trust dies before the trust expires the assets become part of the taxable estate of the individual, and the beneficiary receives nothing.
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