Sep 1, 2007 12:00 PM, By Peter D. Crawford, Jr., partner, Greenbaum, Rowe, Smith & Davis LLP, Iselin, N.J.

By: By Peter D. Crawford, Jr., partner, Greenbaum, Rowe, Smith & Davis LLP, Iselin, N.J.

Consider a not uncommon scenario. The date is Jan. 1, 2008. Bob Savvy is the sole shareholder of Family Fortune, Inc., an S corporation. Family Fortune was recently appraised at $10 million, but the investment bankers Bob has spoken to believe that an investor could be found who'd be willing to pay up to $40 million. If the business climate changes, it also could decline in value to $1 million. Bob is married to Sue Savvy; they have two children. His objective is to transfer — with the least risk and the least tax cost — as much of his Family Fortune stock as possible to his children.

There are two conventional solutions to this dilemma: (1) an outright gift or (2) a transfer to a short-term zeroed-out grantor-retained annuity trust (GRAT). Both have their downsides. Instead, Bob should consider what I call a “disclaimer QTIP trust” — but only after carefully evaluating this strategy's advantages and disadvantages. Note: it works best for owners of closely held businesses that have the potential for growth, and it only works for married donors.

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