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Abstract: 

This article analyzes alternative potential planning responses to two different yet increasingly common scenarios involving an installment sale to a grantor trust that has already been implemented but may be experiencing problems amid the recent global economic downturn. The article identifies benefits and risks associated with a number of possible planning responses that the grantor-lender may consider when the borrowing grantor trust is having trouble paying the obligations it owes to the grantor-lender, and the trust is either (1) “partially underwater” (i.e., its outstanding liabilities exceed the fair market value of its assets), or (2) “completely underwater” (i.e., its outstanding liabilities exceed the undiscounted liquidation value of its assets). In difficult circumstances like these, income and transfer tax issues abound while additional wealth transfer planning opportunities exist. It is thus essential for planners to familiarize themselves with and properly counsel their clients about these issues and planning responses.

Keywords: Strategies for

Affiliations:  1: Thompson Hine LLP; 2: Thompson Hine LLP.