Featured Article
Transfer Techniques—Part 3
Posted July 2007
Qualified Personal Residence Trust (QPRT)
A qualified residence trust allows you to retain the use and control of a personal residence for a stated term of years and eventually pass the residence to children or grandchildren. Provided you survive the stated term of years, the tax benefits are similar to a grantor-retained annuity trust (GRAT). Your taxable transfer is the discounted present value of this future gift to the family members who receive the residence.
A charitable variation on this plan is the gift of a remainder interest in a personal residence or farm while retaining the right to possess and enjoy the property for life or a term of years. This arrangement provides the donor with an income-tax deduction for the present value of the remainder interest.
Intrafamily Sale
Under this arrangement, you sell an appreciating asset or a remainder interest in an asset to one of more family members in exchange for an installment note. Such intrafamily sales represent a way to "freeze" the value of the asset because the note will not grow in value beyond any interest that accrues. Capital-gain tax in such an arrangement can be reduced if a long-term installment note is used. Or you may consider transferring the note to a defective grantor trust.
Charitable Remainder Trust (CRT)
A charitable remainder trust is an effective way to move out of appreciated investments, increase income, avoid immediate capital-gain tax, and ultimately make a charitable gift at the same time. Donors can diversify their investments and fund trusts with cash, marketable securities, closely held stock, and unencumbered real estate, as well as other assets. The CRT is tax-exempt and can sell the assets without incurring capital-gain tax. You may arrange income distribution to yourself, your spouse, or others as you wish. Either variable or fixed income is possible. The remainder interest can also be specified for multiple charitable beneficiaries.
Private Family Foundation
A private family foundation (or alternative supporting organization or donor-advised fund) allows a donor to set aside funds for charitable purposes. You can make gifts by lifetime transfers, or at death or through a charitable lead or remainder trust. Family members can have an impact on society by being involved in the causes that are important to them.
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Wealth-preservation planning allows for the effective use and transfer of assets by, and for, your family, as well as the charities that are meaningful to you. Deciding how much you need for yourself, how much to leave your heirs, how much tax will go to the IRS, and how to benefit charity leads to effective distribution of wealth by using a variety of techniques chosen by you.
Please contact us if we can be of any assistance in this process.
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