Selling a $5 million business interest to a grantor trust does not remove $5 million from your estate. You have exchanged the business interest for a $5…

Selling a $5 million business interest to a grantor trust does not remove $5 million from your estate. You have exchanged the business interest for a $5 million note.

What can move to the family is the return the trust earns above its debt payments. In this illustration, the business produces $400,000 of cash. The trust pays you $200,000 of interest and keeps $200,000 before fees. It still owes the $5 million principal.

You also pay the income tax on the trust's income. The trust needs enough cash to make the payments, and you need enough cash to pay that tax.

This is how the sale can move future growth to the family while you receive payments on the note. Today's Daily Tax Planning Strategy follows the cash and shows what remains with each side.

#Tax #TaxPlanning #FamilyOffice