DEATH TERMINATING INSTALLMENT SALE:

This is a situation where parents might have a piece of appreciating real estate that they might like to get out of their estate. While they can gift it to their children, that does not give the parents any needed income. Under an installment sale to children, they pay the parents but the payments stop upon death. Though gain is income taxable at death, any appreciation from the time of sale has been avoided. And gain may be limited if the surviving spouse sold the property since he/she received a full step up in basis upon death (community property). The buyer's basis is the sales price. The price must be at arm's length and, inherent with this type of sale, there is a 10% risk premium. So a $1,000,000 property would need to be sold for $1,100,000. A deed is exchanged and note taken back for security. The note cannot be longer than the actuarial lifetimes. The payments can be less than full amortization by using a balloon payment closer to actuarial lifetime, but interest may be accrued and taxed according to imputed interest rules. Payments are taxed as income or a return of basis if applicable to the seller and are deductible to the buyer. Most of these assets should have sufficient income to make payments to the parents, though the children could to it as well. In fact, the parents could even gift part of the funds ($10,000 per person per year). Buyer must hold for two years after death- otherwise appreciated gain is taxable in the deceased's estate. However, if there is only a minor gain, it might be preferable to sell. If there are several children involved, a trust might be the beneficiary of the income and the trustee would make the payments to the parents. In that way, wayward children can't screw it up. This is also an excellent consideration for grandchildren since it avoids the generation skipping tax- or it may be used in conjunction with the installment sale.

Installment Sales: By selling an asset to family members on an installment basis, the potential appreciation on the asset is shifted to the family members. This works only if the purchase price is "full and adequate consideration" and the arrangement is properly documented in order to create a legally enforceable obligation. Upon the death of the payee, the unpaid balance of the note is included in his or her taxable estate for estate tax purposes, but the asset that was sold is out of the estate, including its appreciated value. The installment note can be secured by the property sold.

Private Annuities: A private annuity is a contract that provides for specified payments to the named annuitant during the annuitant's lifetime. This is similar to the death-terminating promissory note, but under a private annuity, the payments never cease so long as the annuitant is alive, even if the annuitant outlives his or her life expectancy. The primary advantage of the private annuity is the fact that the annuity amount can be determined from the IRS valuation tables, eliminating the guess work as to the amount of the periodic payments to be made. Unlike promissory notes used with installment sales, private annuities cannot be secured, putting the annuitant at risk that the payor may become bankrupt.

This is an overview that I believe current. However, as with all types of estate planning issues, I wouldn't even attempt this strategy without a review by a competent estate planning attorney. But it may give you an idea of what might be approached.

Odds of Death Due to Injury (2002) An extensive table providing statistics of , "What are the odds of being killed by lightning?" or "What are the chances of dying in a plane crash?" Examples:

The odds of dying from an injury in 1998 were 1 in 1,796.

The lifetime odds of dying from an injury for a person born in 1998 were 1 in 23.