Innovations in Tax Cleverness

Among the economic doldrums, we’ve spotted an industry ripe with innovation: Tax accounting! Our ingenious estate tax is forcing increasing numbers of taxpayers to create “intentionally defective grantor trusts.” How, you might ask, can I get one of those? Easy . . .

she will start the trust by giving it some money — $193,670 — to buy the buildings. She won’t owe any gift tax on that transfer, because taxpayers get a lifetime $1 million credit to shield their gifts.

With the $193,670 in seed money, plus a loan for $643,030 from the couple, the trust will buy their stake in the buildings, currently valued at about $1.2 million. The interest rate over the loan’s nine-year term: a mere 2.15%.

In another positive twist, the trust won’t have to pay Drs. Massiah and Emanuele back the full $1.2 million. Because the couple owns the real estate through a limited liability corporation, they can discount the value of the stakes they sell to the trust.

The upshot: The trust only has to pay back $643,030, plus 2.15% interest, says Rudy Fusco, the couple’s estate-planning lawyer at Leeds Morelli & Brown PC in Carle Place, N.Y.

The estate tax doesn’t benefit families, the economy, and not even the government. It raises very little revenue but imposes huge dead weight losses on the economy. It helps only estate lawyers and tax accountants.

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