Article on The Tax and Practical Aspects of the Installment Sale to Spousal Grantor Trust
The familiar installment sale to a grantor trust, where a taxpayer sell property to his or her wholly-owned grantor trust, is an effective technique to shift assets among family members on an income and estate tax efficient basis. A variation on this traditional technique is a sale by a trust beneficiary to a grantor trust treated as wholly-owned by the beneficiary’s spouse (the “spousal grantor trust sale”). Similar to the traditional grantor trust sale, the spousal grantor trust sale accomplishes a freeze on the value of the consideration received on the sale for estate tax purposes. However, the spousal grantor trust sale provides several meaningful advantages over the traditional grantor trust sale, including the potential ability of the selling spouse to be a beneficiary of the trust, possess a special testamentary power of appointment over trust property, or serve as trustee of the spousal grantor trust. This article analyzes the tax and practical aspects of an installment sale to a spousal grantor trust, and how it differs from a traditional grantor trust sale.