Do You Need A Self-Cancelling Installment Note?

In this episode of Berry’s Bites, Chris Berry answers the question: Do I need a Self-Cancelling Installment Note?



Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.

With the use of legal structures like revocable living trusts, Castle Trusts (asset protection trusts), Chris Berry and Castle Wealth Group can help your family plan, protect, and preserve what is important through their Retirement and Legacy Blueprint Process.

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Episode Transcript:


Do I need a self canceling installment note?


This question came in, someone saw like something on Facebook that was talking about how self canceling installment notes are a great estate planning tool. And what I would say is yes, they are a tool, but what I would say is that for majority of people, they’re not. A necessary tool, what a self canceling installment note is, basically what you’re doing is you’re just selling assets to family members.

One would be if you have a lot of capital gains for this to make sense, to add this level of complexity, you have to have an estate tax issue, because right now you have a step up and basis for anything that has capital gains. So if you leave this to the next generation, they don’t have to. Like if you bought something for a hundred thousand and then date of death, it’s voted a million dollars and then the kids sell it for 1.5 million, they don’t have to pay the tax on what you bought it at because they get step up and basis of death.

So with capital gain, you don’t really have to worry about that much because you get to step up upon death. So where this comes into play is if you have a state tax. And so right now, if you have more than 12 million single or 24 million married, then you have an estate tax issue. And then you may want to consider things like self canceling installment notes, where basically what you’re doing with this is you’re taking appreciated assets, putting them into this note, and then your kids kind of buy the note.

Discount, and that discount might be like 10%. And so now you’ve lowered the value of the assets inside of the notes by 10%, so it lowers your estate tax. So a lot of times this is more like business owners, large pieces of real estate. I’ll tell you the way our practice is set up. We don’t have many clients who fall into this 12 million single 24 million.

Now, it used to be different. It used to be down at like this 12 million used to be as low as 600,000 way back in the day, but with the state tax continuing to grow, some of these estate tax planning strategies just kind of have fallen by the wayside because we don’t need to use ’em because we have this huge estate tax exemption.


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