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Catching the Wave: Reassessing Wealth Transfer Plans in Light of Current Economic Conditions  

Author:  Michael R.  Pieczonka.

Source: Volume 29, Number 02, Winter 2012 , pp.23-48(26)

Journal of Taxation of Investments

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The current market of severely depressed asset values; the increased $5 million lifetime gift, estate, and generation skipping transfer (GST) tax exemption amounts set to expire at the end of 2012; and all-time low interest rates make now an opportune time for an individual to reassess his or her wealth transfer plan, or to create one for the first time. This article discusses the appropriate Applicable Federal Rate (AFR) for individuals who are creating a wealth transfer plan for the first time which utilizes an intentionally defective grantor trust (IDGT), family limited partnership (FLP), and installment sale promissory notes (ISPNs). Additionally, several alternatives are discussed regarding the substitution of an existing ISPN at a higher AFR for a new ISPN at the current lower AFR for individuals with existing wealth transfer plans consisting of an IDGT, FLP, and ISPN. The gift, estate, GST, and income tax ramifications are detailed.

Keywords: estate planning, intentionally defective grantor trust, grantor trust, AFR, Applicable Federal Rate, installment note, family limited partnership, valuation discount, IRC Sec. 7872, below market rate interest loans

Affiliations:  1: Handler Thayer, LLP.

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