How does a self-canceling installment note work?
As a general rule, the fair market value of an unpaid installment note on the date of death is included in the taxable estate of a seller who dies before the debt is entirely satisfied. However, under current case law, no amount is includable in the gross estate of a decedent with a note containing a provision under which all obligation to pay automatically ceases on the obligee-seller s premature death. Such notes are called “self-cancelling installment notes” (“SCINs”), and can be a very useful method to remove significant assets from the seller s taxable estate. To withstand challenge by the IRS on the grounds that the SCIN was not a bona fide sale or that full and adequate consideration was not received, the planning before implementing a SCIN must focus on the reasonableness of believing that the seller will live out the term of the note, the reasonableness of the interest rate used under the circumstances, and the valuation of the property being sold. To establish a bona fide ins
