Irrevocable Non-Grantor Trusts in Reston, VA

Serving Northern VA, DC, and MD

As an alternative to a sale of an appreciated asset to an intentionally defective grantor trust (IDGT) or a self-cancelling installment note, you could sell an appreciated asset to children directly or to a non-grantor trust for the benefit of children in a taxable installment sale.

The sale would be made in exchange for a promissory note bearing interest only, with principal being due on the maturity date. The maturity date typically must be no more than 20 years into the future, and the interest rate would be based upon the IRS’ long-term applicable federal rate. The note may or may not be secured but would need to be enforceable under local law.

What is a Non-Grantor Irrevocable Trust

Any trust that is not a grantor trust is a non grantor trust. Trusts of this type do not give the grantor any control or authority. As a result they cannot change or revoke the terms of the trust or make changes to beneficiaries.

Is An Irrevocable Non-Grantor Trust Right for You & Your Family?

If the purchaser is a related party (including your children or a non-grantor trust for their benefit), the purchaser must hold onto the asset for at least two years for you to get installment sale treatment. Moreover, to avoid an interest charge on the taxes deferred in the installment sale, you would need to sell less than $5 million in assets ($10 million for taxpayers who are married and file joint returns) in any one taxable year. Any interest received from the purchaser will be taxable at ordinary income tax rates, but the principal will be taxed as long-term capital gains only when principal payments are received.

What is the Difference Between a Grantor and Non Grantor Irrevocable Trust?

Unlike grantor trusts, non-grantor trusts are often treated like separate entities, similar to C-corporations. Grantor trusts, however, are treated like direct owners of the trust's assets because they hold significant rights to the assets and income like a sole proprietorship.

Call Our Irrevocable Trust Lawyers

Our non-grantor irrevocable trust attorneys at Zell Law can help you set up a trust. Give us a call at 571-410-3500.