A popular estate planning technique is the sale to an irrevocable trust which is colloquially known as an "intentionally defective grantor trust." While calling a trust "defective" doesn't always generate a good first impression for a client, it is this very defect that allows you to achieve the goal of freezing the value of the sold asset(s) for estate tax purposes.
In short, this strategy allows for freezing of estate tax value without using your gift tax applicable credit amount for the value of the entire transfer. Instead, a small upfront gift of "seed money" is made to the trust, and the trust then purchases one or more assets from the grantor in exchange for a down payment (the seed money) and an installment obligation to pay the grantor back over time. Since this is a grantor trust, there is no income tax on realized gain from the sale or on interest payments back to the grantor.
This transaction, however, is not as simple as it seems. There are several requirements which should be met in order to treat this as a sale and not a gift.
