BDIT Installment Sale Wealth Transfer Modeler
A Beneficiary Defective Inheritor's Trust moves wealth across the estate tax line in two ways: a valuation discount that shrinks the note the moment the sale closes, and every dollar of growth above the note rate thereafter. This tool models both on your own assumptions and compares the result against doing nothing at all. It does not model income tax, so it leaves out a third benefit — the tax the beneficiary keeps paying on the trust's earnings — and understates the result accordingly.
Your Assumptions
Net asset value of the property contributed to the family partnership.
Appraised discount on the non-controlling interest sold to the trust.
Total return on the underlying assets.
Interest-only with a balloon at maturity. Nine years is typical.
The applicable federal rate for the note's term. August 2026: short-term 4.10%, mid-term 4.35%, long-term 4.92%.
Funded by a third party. Above $5,000 the lapse may be a gift by the beneficiary.
Assumes the estate is already above the exemption.
May be shorter than the note term. The note stays in the estate at face until it is paid.
Drawn from personal assets each year, which reduces the taxable estate. Set to zero to isolate the transaction from lifestyle.
Growth in annual spending.
Result
Side by Side at Your Horizon
What the Estate Tax Would Cost, by Year of Death
Chart unavailable in this view. The figures above carry the same information.
Each point is the estate tax that would be assessed if death occurred in that year. The shaded band is tax the transaction avoids. The upper line climbs with every dollar the assets earn. The lower line does not: while the note is outstanding the estate holds it frozen at face, so the tax on it does not change however the assets perform, and afterward the cash it becomes is drawn down by living expenses.
What the Family Actually Keeps
Chart unavailable in this view.
The dashed line is total family wealth before estate tax, which is the same either way — the transaction does not create wealth, it relocates it. The two solid lines are what actually reaches the family after estate tax, and the band between them is what the planning is worth. Where living expenses are set above zero, spending draws the estate down over time — which is why the taxable estate, and the tax on it, shrink even as total wealth grows.
If Growth Differs
Wealth moved outside the taxable estate at your horizon, holding every other input constant.
Is this structure right for your situation?
The numbers above are only part of the analysis. Whether a Beneficiary Defective Inheritor's Trust fits depends on the size of your estate, the growth profile of the asset, whether a third party will create and fund the trust, whether a creditworthy party will guarantee the note, and your tolerance for a position that rests on private rulings rather than published guidance.
Disclaimer:
This tool is for informational purposes only and does not constitute legal or tax advice. It is a simplified model: it assumes a constant rate of return on a buy-and-hold asset and does not model income tax at all, assumes the estate is already above the applicable exemption so that the marginal estate tax rate applies, and ignores state taxes, transaction costs, guaranty fees, and partnership-level expenses. Because the beneficiary is treated as the owner of the trust for income tax purposes, their payment of the tax on the trust's earnings shifts additional wealth to the family every year — a real benefit that this model omits, which makes the results shown here conservative. Valuation discounts depend entirely on a qualified appraisal of the specific interest transferred and are subject to challenge. The application of sections 678, 2036, 2041, 2514, and 2601 through 2664 of the Internal Revenue Code, and of state trust, partnership, and creditor law, depends on individual facts and circumstances. Consult a qualified tax attorney or CPA before making decisions based on this information. Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.