SCIN Transaction - Self-Canceling Installment Note (3 Pages)
This Form is the Promissory Note to be used in a SCIN transaction. It accompanies the Acquisition Agreement that describes the transaction of installment purchase and sale.
In order to satisfy the SCIN requirements, the Note must contain a premium to allow the note cancellation feature – either an enhanced purchase price or an enhanced interest rate. This Note uses the enhanced interest rate. This rate may not be selected randomly; it is based on the market interest rates at the time of the sale, the age of the seller and the duration of the Note. Software programs are typically used to determine the rate that will withstand IRS scrutiny.
In order to assure the validity of the SCIN transaction, it is recommended that the duration of the note not exceed the actuarial life expectancy of the seller of the property.
SCIN Transaction-Acquisition Agreement (5 Pages)
This Form is the Acquisition Agreement to be used as part of a “SCIN” Transaction – i.e. an installment sale to a related party where the promissory note is cancelled by its own terms if the seller dies before the note has been paid in full. Hence the term “SCIN” – (Self-Canceling Installment Note).
The Acquisition Agreement is necessary to describe the transaction of purchase and sale. It is strongly advised that a fair market value appraisal for the property being transferred be obtained and attached to this Agreement as Exhibit A.
The Self-Canceling Promissory Note is, of course, an integral part of this transaction, and is attached to this Agreement as Exhibit B.
In order for a SCIN transaction to be successful, there must be a premium paid by the Buyer for the cancellation feature of the note. This premium may take the form of either an increased purchase price (over fair market value) or an increased interest rate (over market interest). These premiums are determined actuarially, taking into account the age of the seller, market interest rate at the time of the sale, duration of the note, etc. This Form uses an enhanced interest rate as the premium element.
Steven G. Siegel is president of The Siegel Group, a Morristown, New Jersey - based national consulting firm specializing in tax consulting, estate planning and advising family business owners and entrepreneurs. Mr. Siegel holds a BS from Georgetown University, a JD from Harvard Law School and an LLM in Taxation from New York University.
He is the author of several books, including: Planning for An Aging Population; Business Entities: Start to Finish; Taxation of Divorce and Separation; Income Taxation of Estates and Trusts, Preparing the Audit-Proof Federal Estate Tax Return, Putting It Together: Planning Estates for $5 million and Less, Family Business Succession Planning, Business Acquisitions: Representing Buyers and Sellers in the Sale of a Business; Dynasty Trusts; Planning with Intentionally-Defective Grantor Trusts; The Federal Gift Tax: A Comprehensive Analysis; Charitable Remainder Trusts, Grantor Trust Planning: QPRTs, GRATs and SCINs, The Estate Planning Course, The Retirement Planning Course, Retirement Distributions: Estate and Tax Planning Strategies; The Estate Administration Course, Tax Strategies for Closely-Held Businesses, and Tort Litigation Settlements: Tax and Financial Issues.
Mr. Siegel has lectured extensively throughout the United States on tax, business and estate planning topics on behalf of numerous organizations, including National Law Foundation, AICPA, CCH, National Tax Institute, National Society of Accountants, and many others. He has served as an adjunct professor of law at Seton Hall and Rutgers University law schools.
The Siegel Group provides consulting services to accountants, attorneys, financial planners and life insurance professionals to assist them with the tax, estate and business planning and compliance issues confronting their clients. Based in Morristown, New Jersey, the Group has provided services throughout the United States. The Siegel Group does not sell any products. It is an entirely fee-based organization.
Contact the Siegel Group through its president, Steven G. Siegel, e-mail: firstname.lastname@example.org.