Methods of Creating Post-Transaction Appreciation
- Estate Freeze
A transaction that removes Post-Transaction Appreciation from one’s taxable estate. - Leverage
A transaction that removes the difference between the Post-Transaction Appreciation and the post-transaction obligation from one’s taxable estate. For example, if one sells an asset that will appreciate 10% per year for a note that requires interest only of 6% per year with principal payable at the end of 9 years, the leverage is created by the 4% spread each year. As Albert Einstein has said, “the strongest force in the universe is compound interest.” - Reduce Value of Assets
The most controversial Advanced Estate Planning Technique is the use of valuation reductions or discounts by transferring property to different entities that either create restrictions on the transferred property or create partial interests in property. The IRS does not like valuation reductions or discounts. In fact, there has been proposed legislation to eliminate the use of valuation reductions or discounts when property is transferred to family entities, such as Family Limited Partnerships (“FLPs”) or Family Limited Liability Companies (“FLLCs”). However, under current law, valuation reductions or discounts are recognized, if such valuation reductions or discounts are supported by a qualified appraisal. Read more on reducing the valuation of assets.