BarbriSFCourseDetails
  1. keyboard_arrow_leftBack

Course Details

Course Information
  • smart_display Format

    Live Online with Live Q&A

  • signal_cellular_alt Difficulty Level

    Intermediate

  • work Practice Area

    Estate Planning

Date & Time
  • event Date

    Thursday, June 12, 2025

  • schedule Time

    1:00 p.m. ET./10:00 a.m. PT

  • timer Program Length

    90 minutes

Credit Information

  • This 90-minute webinar is eligible in most states for 1.5 CLE credits.

  • BARBRI is a NASBA CPE sponsor and this 110-minute webinar is accredited for 2.0 CPE credits.

  • BARBRI is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).

$297.00

This CLE course will provide estate planning counsel and advisers with a comprehensive and practical guide to structuring asset sales to intentionally defective irrevocable trusts (IDITs). The panel will discuss promissory notes and private annuities in estate planning and will identify ideal scenarios for determining which payment vehicle to use. The event will also provide concrete drafting suggestions to avoid tax traps in structuring intra-family wealth transfers to defective trusts.

Faculty

Mulligan Michael
Shareholder
Lewis Rice, LLC

Mr. Mulligan is a principal originator of the estate planning strategy of sale to defective trust for an installment note, now widely used by estate planners nationally. He has been elected to the Estate Planning Hall of Fame® and has been awarded the Accredited Estate Planner® (Distinguished) designation by the National Association of Estate Planners & Councils. He is currently a member of the Editorial Boards of Estate Planning Magazine and The Journal of Taxation, having written numerous articles for both publications as well as the Journal of the Missouri Bar. He is a frequent lecturer on tax and estate planning subjects, and he has spoken at tax institutes and seminars across the country.

expand_circle_down Expand to View Full Bio expand_circle_up Collapse Bio
Giarmarco Julius
Shareholder
Giarmarco Mullins & Horton, PC

Mr. Giarmarco's primary practice areas include estate planning, business succession planning, wealth transfer planning, and life insurance applications. He lectures frequently on a national basis. He published a number of articles on estate planning appearing in professional journals and is also the author of the chapters on succession planning in Advising Closely Held Businesses in Michigan and The Michigan Business Formbook published by the Institute of Continuing Legal Education (ICLE).

expand_circle_down Expand to View Full Bio expand_circle_up Collapse Bio

Description

A valuable but often misunderstood tool for removing appreciating assets from an estate is through a sale of the assets to an IDIT. Sales take two forms: in exchange for a promissory note or a private annuity. Both types of sales function to freeze the value of the estate. The private annuity transaction works when the client is ill and anticipates less time for the freeze of estate property to work.

Properly structured, a sale to an IDIT can be a highly effective vehicle for transferring appreciating assets out of an estate while minimizing the gift tax impact of transfers. The panel will note that the sale to an IDIT can be even more effective with assets currently depressed in value but whose value is expected to appreciate in the future.

Counsel can draft a private annuity transaction in several ways to ensure cash flow, establish a business succession, and provide asset protection. It is not appropriate if the client is in good health because a premium must be added to the sale price or interest rate to avoid gift tax. The premium increases the estate's value if the seller lives close to or beyond life expectancy.

In structuring a transfer financed by a private annuity, estate planners must ensure the transaction conforms to IRS regulations to avoid gift or estate taxes. Advisers must pay close attention to the so-called "exhaustion test." If the annuity is payable for the seller's life, the premium added to the sales price might be deemed to be depleting the trust, resulting in a gift upon the sale. To apply the "exhaustion test," counsel must assume that the seller might live to the age of 110 years in determining the amount of the gift.

The panel will also discuss the sale of assets to a so-called beneficiary intentionally defective irrevocable trust (BIDIT) in exchange for the BIDIT's promissory note. A BIDIT is an irrevocable trust established by another party that includes the seller as a beneficiary. The panel will discuss the parenthetical exception in IRC Sections 2036 and 2038 for bona fide sales for full and adequate consideration and the likelihood that the parenthetical exception avoids the inclusion of assets sold to a BIDIT in the seller's federal gross estate.

Listen as our experienced panel provides a thorough and practical guide to the use of private annuities and discusses the latest developments in promissory notes in the context of intra-family asset transfers.

Outline

  1. Introduction
  2. Structure of standard sale to IDIT transaction using a promissory note
  3. IRC Secs. 2036(a)(i) and 2702
  4. Sale for a private annuity
    • 50 percent probability of survivorship test
    • The exhaustion test
    • Another individual as measuring life
    • Convert a note into an annuity based on a life
  5. Private annuity vs. self-canceling installment note

Benefits

The panel will review these and other key issues:

  • What provisions should be included in the trust instrument to avoid income tax on the sale?
  • How to avoid IRC 2036 issues in structuring a sale of appreciating assets for either a promissory note or a private annuity
  • How should a sale and exchange for a private annuity be structured to reduce the impact of the exhaustion test?
  • Why private annuities should be preferred over self-canceling installment notes

NASBA Details

Learning Objectives

After completing this course, you will be able to:

  • Ascertain what provisions should be included in the trust instrument to avoid income tax on the sale
  • Recognize how to avoid IRC 2036 issues in structuring a sale of appreciating assets for either a promissory note or a private annuity
  • Understand the tax implications of a sale and exchange for a private annuity and how to reduce the impact of the exhaustion test

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).