The Estate Planning “Perfect Storm”

An Interview with Steven J. Oshins, Esq., AEP (Distinguished)

Nationally-known estate planning attorney Steve Oshins and nationally-known CPA Bob Keebler recently gave a joint teleconference for us entitled, “Estate Planning Techniques in a Time of Low Interest Rates”.

In that presentation, Steve and Bob coined the term “PERFECT STORM” to reflect the current estate planning environment.  We interviewed Steve after the session and are pleased to bring to you highlights from the transcript of the interview.

UEP:  Why did you and Bob call the current estate planning environment the “PERFECT STORM”?

SO:  We did so for two reasons.  First of all, the federal interest rates just hit an all-time record low which makes the advanced estate tax planning techniques work better than ever.  Secondly, many asset values are low because of the Coronavirus issues.  This includes brokerage portfolios, real estate and businesses in many industries.  The lower the value, the less gift tax exemption needed for transfers.

UEP:  Let’s spend some time on the details of the advanced estate tax planning techniques.  Where would you like to start?

SO:  Let’s start with the primary technique used to transfer wealth which is the installment sale to an income tax defective dynasty trust.

UEP:  Okay.  Please first describe the technique so our readers know how it works.

SO:  Sure.  The client sets up an irrevocable trust that is drafted to continue for multiple generations with no estate taxes.  The trust is designed as a grantor trust for income tax purposes which means that the client pays the income taxes on income earned by the trust.  Because the client and the trust are the same person for income tax purposes, sales to the trust are disregarded for income tax purposes.  The client makes a gift into the trust and then sells a minority interest or non-voting interest in a business entity to the trust in exchange for a promissory note or other deferred payment.  Because of the minority or non-voting interest, the business interest is subject to a valuation discount which therefore enables the client to transfer more wealth to the trust at a lower value.

UEP:  How is the promissory note or deferred payment structured?

SO:  There are a few options.  We will often structure it as a regular interest-only promissory note with the right of prepayment of principal without penalty to allow for it to be amortized more quickly.  When we do that, we will either use the federal mid-term rate for a 9-year note or otherwise use a much longer note such as 30 years at the federal long-term rate.  Since those rates are lower than they have ever been, there is minimal interest owed back to the client which is exactly what we want to have happen.  In addition to the traditional note, we will also sometimes add a self-cancelling provision to the note which means that no more payments need to be made if the seller dies before the note is full paid.  This is known as a self-cancelling installment note.  And finally, we will often use a private annuity instead.  This is generally a fixed payment for the rest of the client’s life which acts as a bet-to-die strategy if the client dies within his life expectancy, yet protects the client if the client lives longer than expected.  All of these deferred payment options work better when interest rates are low.

UEP:  The alternative estate planning technique is a Grantor Retained Annuity Trust, otherwise known as a GRAT.  Please tell us how the lower interest rates affect GRATs.

SO:  A GRAT is an irrevocable trust into which the client makes a gift and retains a stream of annuity payments for a term of years.  The client generally funds the GRAT with a minority or non-voting interest.  Because the annuity payments are computed based on a formula that assumes a rate of return based on the monthly IRS rates, just like the deferred payment sale, it is advantageous to fund a GRAT while interest rates are at an all-time low.  This reduces the dollar amounts of the annuity payments that the client receives from the GRAT, thereby leaving more wealth for the client’s beneficiaries.

UEP:  Thank you for the interview.  Can you finish by summing up the concepts for our audience?

SO:  The bottom line is that the lower the IRS interest rates, the less wealth the wealthy client receives back from a deferred payment sale, whether via a regular note, a self-cancelling installment note or a private annuity, and the lower the retained annuity payments from a GRAT.  When you couple this with reduced asset values because of the Coronavirus issues, we have the PERFECT STORM!


If you found this article interesting, you might also be interested in these other educational programs and products by Steve Oshins:


Steven J. OshSteven-Oshins43721143ins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He was named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor. Steve was also named one of the Top 100 Attorneys in Worth and is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates Lawyer of the Year in 2012, 2015 and 2018 and Tax Law Lawyer of the Year in 2016 and 2020.  He can be reached at 702-341-6000, ext. 2, at or at his firm’s website,

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