The Installment Sale:
Sell It to the Trust, Keep Control
An installment sale to an Intentionally Defective Grantor Trust (IDGT) lets you transfer appreciating assets at a discounted value, receive interest-only payments along the way, and pass all growth above the AFR rate to your heirs — completely free of gift and estate tax.
How an Installment Sale to an IDGT Works
A powerful alternative to GRATs for transferring concentrated positions, business interests, and illiquid assets with built-in valuation discounts.
Sell at a Discount
You “sell” assets to the IDGT at their discounted fair market value — for example, applying a 30% valuation discount for lack of control and marketability. The trust gives you a promissory note for the discounted price. Because the IDGT is a grantor trust, this sale triggers zero capital gains tax.
Interest-Only Payments
The trust pays you interest-only at the AFR (Applicable Federal Rate) — currently just 3.9% for mid-term notes. This is far lower than the §7520 rate used for GRATs, meaning more growth stays in the trust. The principal is repaid as a balloon at maturity.
Growth Passes Tax-Free
All appreciation above the AFR rate remains in the trust and passes to your heirs free of gift and estate tax. Plus, because the grantor pays the trust's income taxes, the trust assets compound without tax drag — an invisible, additional transfer.
Why an Installment Sale Over a GRAT?
While GRATs are powerful for publicly traded assets, installment sales to IDGTs offer distinct advantages — especially for closely held business interests, pre-IPO stock, and assets eligible for valuation discounts.
Valuation Discount
Apply lack-of-control and lack-of-marketability discounts (20–40%), immediately reducing estate exposure.
Lower Hurdle Rate
AFR is typically lower than the §7520 rate, meaning the trust needs to clear a lower bar to transfer wealth.
Better Mortality Protection
If the grantor dies, only the unpaid note balance is included in the estate — not the entire trust.
Balloon Payment
Interest-only payments preserve trust capital during the note term, with principal repaid at maturity.
3.93%
Current AFR mid-term rate — the only hurdle your assets need to clear
30%
Typical valuation discount for FLP/LLC interests, immediately reducing estate exposure
$0
Capital gains tax on the sale — the IDGT is invisible to the IRS for income tax purposes
Installment Sale Simulator
Model your installment sale scenario with 2,000 randomized market paths. See the range of wealth transfer outcomes after the balloon repayment.
Configure Your Sale
Adjust inputs to model your specific situation
How Altar Rock Can Help
An installment sale to an IDGT involves precise coordination between valuation, legal structure, investment management, and tax planning. Our team brings these disciplines together.
Valuation & Discount Analysis
Working with qualified appraisers to determine defensible valuation discounts for your business interests, FLPs, or LLC interests.
Trust & Note Structuring
Designing the IDGT structure, promissory note terms, seed gift strategy, and ensuring the transaction meets IRS requirements.
Investment Management
Managing the trust's investment portfolio to maximize growth above the AFR hurdle rate while managing the note repayment obligations.
GRAT + Sale Integration
Combining installment sales with rolling GRATs and outright gifts to build a comprehensive, multi-strategy wealth transfer program.
Explore More Calculators
Model different strategies to build a comprehensive wealth transfer plan.
This calculator is for illustrative purposes only and does not constitute investment, tax, or legal advice. Monte Carlo simulations are based on randomized market scenarios and do not predict future results. Valuation discounts must be supported by qualified appraisals. The IRS has not expressly sanctioned the installment sale to IDGT technique; consult a qualified attorney and tax advisor before implementing. AFR rates are published monthly by the IRS. Altar Rock LLC is an SEC-registered investment adviser.