Graegin Loans and Estate Tax Planning: Recent IRS Regulations, Requirements, and Potential Limitations

This CLE/CPE webinar will provide trusts and estates counsel guidance on utilizing Graegin loans to minimize estate taxes and potential limitations stemming from recent IRS regulations. The panelist will discuss recent developments and IRS guidance, review requirements under current tax law, and offer planning strategies to minimize estate taxes with Graegin loans.

Graegin loans can provide estates the ability to defer and reduce estate tax liability. Estate planners must understand the requirements under current tax law when utilizing Graegin loans, pitfalls to avoid, and potential limitations under recent IRS regulations.

For low liquidity estates, a Graegin loan can be used as a mechanism to finance payment of estate tax and administration expenses. Rather than selling one or more illiquid assets to pay an estate tax, the estate may borrow cash through a Graegin-style loan. The loan can finance estate tax liability and defer cash payments if structured correctly. In addition, interest payments made over the term of the loan can be deductible, further reducing estate tax liability, especially for estates that would not otherwise qualify for estate tax deferral under IRC Section 6166.

To qualify for an interest deduction, the loan must be structured to comply with IRC Section 2053 and related regulations, which allows for the deduction of administration expenses from the value of the gross estate that are "actually and necessarily" incurred in the administration of the estate. However, recent IRS regulations appear to provide significant limitations regarding the use of Graegin-style loans and the tax benefits they provide.

Listen as Benjamin Lavin, Attorney at Katten Muchin Rosenman, discusses recent developments and IRS guidance, outlines requirements under current tax law, and offers planning strategies to minimize estate taxes with Graegin loans.