Understanding the Benefits of Self-Canceling Installment Notes in Estate Planning

Estate Planning | InspireHer: Plancorp Women’s Initiative

 Susan Jones By: Susan Jones

Introducing self canceling installment notes (SCINs): a unique form of promissory note that allows buyers and sellers to securely transfer real estate, business interests, and other assets while helping to optimize income, gift and estate taxes.

SCINs are complex and not a perfect solution for every situation, but this article will explore the benefits of SCINs and how they can be used in sophisticated estate planning.

Legal advice should always be sought before entering a transaction such as this, as specific transfer tax and other tax consequences may vary depending on the transferor, transferee, and the time of the transaction.

An introduction to self-canceling installment notes

A seller-financed installment sale allows a buyer to purchase business interests, stock, real estate, or other assets over a period of years during which gain from the sale and interest income on the note is only recognized to the seller when the proceeds and interest are actually received. In addition to helping the purchaser with cash flow and liquidity concerns, in many cases the seller may also reduce his or her overall income tax exposure by spreading the gain over a multi-year period. For estate tax purposes, the installment sale "freezes" the value that is includible in the seller's gross estate potentially minimizing the seller's estate tax liability.

While a sale that involves a SCIN is structured in many ways the same as any installment sale, it has one very unique feature: the note includes a “self-canceling” feature under which the buyer’s outstanding payment obligations on the note are immediately cancelled upon the death of the seller, causing the note to essentially be terminated. A SCIN is generally used in the family context and is often used in conjunction with other complex estate planning strategies, such as an intentionally defective trust.

In order to have the self-cancelling feature of the note be respected for tax purposes, there does need to be some additional consideration included in the structure of the purchase price. This additional consideration may take the form of a higher purchase price or higher interest rate than would otherwise be required, meaning that if the seller survives the note term the buyer will have paid more for the asset than he or she would have under a traditional seller-financed installment sale. For this reason, in the family context where a SCIN is being used primarily as an estate tax mitigation technique, the SCIN is most beneficial when the seller has a shorter anticipated life span than would otherwise be reflected using life expectancy actuarial tables.

Contingent payments

SCINs are installment sales with a unique feature, cancellation in the case of the issuers death.

Conversely, suppose the seller lives longer then the original payment date. In that case, they may receive a higher amount of the full purchase price than initially agreed, creating a risk that the buyer ultimately pays more than he or she expected.

Tax planning with SCINs

The headline here is that SCINs may be an integral part of income and estate tax optimization strategies by helping to spread income over a period years and potentially reducing the seller’s gross estate. If you are considering the sale of assets, be it real estate or business interests, to a related individual or trust, your financial advisor should be raising methods such as a SCIN strategy for consideration.

Like all sales and other transfers, especially those to related individuals, it is important to note that a SCIN transaction should accurately reflect the asset's fair market value, the applicable federal rate of interest, and a premium in the form of additional purchase price or higher interest rate. Thus, it is vital to seek legal advice and tax advice when researching SCINs to ensure that transfer tax, and other tax consequences for both parties, from both income and gift tax perspectives, are properly considered.

In addition, the term of the note, the transferor's actuarial life expectancy, and the interest rate of the note should be planned using professional advice.

How can SCINs be beneficial in estate planning? 

In conjunction with the potential tax benefits, if you're looking for a way to protect your assets and provide for your loved ones after you're gone, self-canceling installment notes (SCINs) may be worth considering. Here's how they are helping:

Benefits to the grantor 

SCINs are promissory notes often used in complex estate planning for high net worth individuals. The seller receives periodic payments from the buyer (usually a child or grandchild) for a specified period. These payments include both the purchase price and interest on the note. If the seller dies during the note's term, the note is automatically canceled, and the buyer is not required to make further payments, meaning the asset may have been able to be transferred at a lower tax cost than had the seller survived.

Tax considerations 

A SCIN may also be used to minimize gift and estate taxes when a seller fails to survive his or her actuarial life expectancy, causing the remaining note balance to be cancelled. Also, as with all installment sale transactions, income tax may also be reduced as the gain on the sale may be spread over multiple years. As noted above, however, if the seller outlives his or her life expectancy, the buyer may ultimately pay more than the contemplated sales price, ultimately increasing the seller’s gross estate and potentially causing more income to be recognized.

Benefits to the beneficiary

SCINs can be a flexible way to provide for loved ones after the grantor's death. Payments can be structured to meet the beneficiary's needs and abilities to take on a new asset, as well as release from that commitment if something untimely happens.

Avoiding possible pitfalls

Overall, when determining whether a self-cancelling installment note is a good option for your situation, remember that they are not loopholes or an "easy" button. There are benefits to both grantors and beneficiaries, but it's crucial to ensure the SCIN is properly drafted and meets all the requirements for self-cancellation to hold up under scrutiny. In addition, the buyer should have sufficient income or assets to make the payments required by the note, something easily overlooked. Finally, the note should be reviewed periodically to ensure that it still meets the needs of the grantor and the beneficiary. Particularly if there is an extended pay-back period, these notes need to be reviewed as situations or laws change.

Benefits of using self-canceling installment notes 

Self-canceling installment notes (SCINs) can offer numerous advantages regarding estate tax planning. Here is a list of key benefits:

  • Self-canceling installment notes (SCINs) can reduce the value of an estate to minimize estate tax

  • SCINs can provide an additional income stream to a seller by allowing them to receive payments over an extended period
  • The SCIN may be structured to meet the purchaser's needs to allow for an extended payment period


Self-canceling installment notes can be a valuable tool in estate planning for the affluent, particularly those with real estate and business interests. They can provide asset protection, tax benefits, and flexible support for loved ones. If you're considering using SCINs, working with an experienced attorney is essential to ensure they're properly drafted and funded.

Note / Disclosure: This article includes ways SCINs can assist and structure an estate process. However, state laws vary, so it is important to consider your circumstances and consult a professional advisor.

Plancorp is a team of certified financial planners and advisors that can assist you with estate planning. Find out more about how Plancorp can help you with your estate planning.


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For over twenty years, Susan has passionately provided wealth management services to individuals, families, fiduciaries, private foundations and their related entities with a focus on sophisticated income, gift and estate tax consulting and compliance, proactive executive compensation planning and succession planning. Susan understands the many facets involved in creating a successful multi-generational family legacy and uses a forward-looking approach to help clients grow and preserve assets, reduce taxes and realize both their financial and non-financial goals. Susan’s experience includes practicing law in the tax and estate planning. More »