In this session we will be looking at two actuarially-based estate planning solutions that can be very powerful in the right situations. Both of these solutions depend on careful analysis of life expectancy. We will be looking at the advantages of using actuarial firms to develop life expectancy profiles and show you how InKnowVision has used those profiles to help deliver superior results to our high net worth clients.

1. Technical Webinar
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2. S C O T T H A M I L T O N , C E O
I N K N O W V I S I O N , L L C
Private Annuities and SCINs
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3. Goals
 Learn basics on techniques
 Learn when to consider PAs or SCINs
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4. SCIN Overview
 Lifetime transfer of cash or property outright or in
trust in exchange for interest bearing note
 Interest Only
 Amortizing
Property
Payments
Grantor
Trust
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5. SCIN Overview
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 At death, note obligation ends.

6. SCIN - Advantages
 Removal of transferred asset and unpaid note balance from transferor-
seller’s estate
 Bypasses generation-skipping transfer rules
 Cash flow
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7. SCIN - Requirements
 Transfer is irrevocable – sort of?
 Installment sale tax treatment is automatic if any payments are made
after the year of sale (Non-grantor trust)
 election to opt out if desired
 Installment treatment is not for sales of marketable securities –
 use entity
 Sales to related parties are generally subject to 2-year third-party resale
restrictions – discussed later
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8. SCIN - Requirements
 Consideration for transferred property must take into account
mortality risk associated with seller’s death while note is outstanding
 Interest Premium
 Principal Premium
 A combination
 Note term must be less than seller’s life expectancy
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9. Interest vs. Principal Premium
 SCIN Compare.xlsx
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10. SCIN -Tax Treatment
Grantor Trust
 No gain or loss recognized on initial sale
 No income or deduction recognized on payments
 No change in basis
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11. SCIN -Tax Treatment
 Non-Grantor or Individual buyer
 Seller’s adjusted tax basis is recovered over life expectancy
 Gain is recognized by seller ratably over the applicable life
expectancy
 Gain = Present value of SCIN – basis
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12. Two Year Resale Rule
 If property sold for SCIN is sold to related party, resale within 2 years
triggers gain to original seller
 If sold after, no gain recognized by original seller
 If grantor trust, gain recognized regardless
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13. Gift and Estate Tax
 No gift tax if FMV of note payments = FMV of property sold
 Effective for estate freeze
 Zero estate inclusion with note since no payments are made to seller
after death
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14. When Would You Consider
 Appreciating estate with significant tax exposure
 Lifetime transfer of closely held business to family members or key
employees
 Shorter than normal life expectancy
 LE Reports
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15. IRS Life Exp.

16. Private Annuity Overview
 Lifetime transfer of cash or property outright or in
trust in exchange for annuity payable over
 Seller’s life (or joint life with another individual)
 Shorter of (a) or a fixed term of years
Property
Payments
Grantor
Trust
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17. Private Annuity Overview
 Annuity issued by other than insurance carrier
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18. Private Annuity Overview
 Annuity payments may be level or increasing
0
2
4
6
8
10
12
1 2 3 4 5 6 7 8 9 10
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19. Private Annuity - Advantages
 Removal of transferred asset from client’s estate
 Not a generation-skipping transfer
 Cash flow
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20. Private Annuity - Requirements
 Transfer is irrevocable
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21. Private Annuity - Requirements
 Annuity payments cannot be secured or tied to
income produced by transferred property
 Securing the payments in any way causes immediate gain
recognition for tax purposes
 Tying annuity payments to transferred property’s income may
result in inclusion in seller’s estate
 Therefore, the buyer should possess wherewithal to satisfy
annuity obligation independently
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22. Private Annuity -Tax Treatment
Grantor Trust
 No gain or loss recognized
 No income recognized
 No change in basis
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23. Private Annuity -Tax Treatment
 Non-Grantor or Individual buyer
 Seller’s adjusted tax basis is recovered over life expectancy
 Gain is recognized by seller ratably over the applicable life
expectancy
 Gain = Present value of annuity – basis
 Immediate gain recognition if annuity payments are secured
 Ordinary income once basis is fully recovered
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24. Annuity Breakdown Example
 $1 MM value
 $100,000 tax basis
 Seller age 60
 4% 7520 rate
 $49,605 annuity payments
Tax Treatment of Annuity Payments
45%
47%
8%
Ordinary Income Capital Gain Basis
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25. Gift and Estate Tax
 No gift tax if PV of annuity = FMV of property
 Effective for estate freeze
 Zero estate inclusion with single life annuity since no future payments
are made to seller
 If joint & survivor annuity
 Seller’s estate includes PV of survivor’s payments
 If survivor is seller’s spouse, no federal estate tax due to
unlimited estate tax marital deduction
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26. When Would You Consider
 Appreciating estate with significant tax exposure
 Lifetime transfer of closely held business to family members or key
employees
 Shorter than normal life expectancy
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