A PRESENTATION TO DCU - Family Business Succession Novembe… ·
Business Succession Planning · 9/8/2018 1 Presented by James Philip Head Business Succession...
Transcript of Business Succession Planning · 9/8/2018 1 Presented by James Philip Head Business Succession...
9/8/2018
1
Presented by James Philip Head
Business Succession
Planning
222
Importance of Family Business
> 90% of US Businesses are Family Dominated
> 50% of GNP and 50% of Employment
> 70% Fail After 2nd Generation
> 90% Fail After 3rd Generation
– Estate Tax is Often Blamed
– Australia Has No Estate Tax, But The Same Failure
Rate
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Important Players
> Owner
> Spouse
> Children
– Involved in Business
– Not Involved in Business
> In-Laws
– Involved in the Business
– Not Involved in the Business
> Key Employees or Advisors
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PRECONDITIONS TO A SUCCESSFUL BUSINESS
SUCCESSION PLAN
> CORPORTATE/ORGANIZATIONAL DOCUMENTS
NEED TO BE ACCURATE, WELL DRAFTED,
COMPLETE AND UP-TO-DATE
– In 90% of the cases, small business have incorrect, incomplete
or ambiguous corporate/organizational documents which could
result in disputes and costly litigation if not modified
> GOOD PERSONAL ESTATE PLAN FOR OWNER
– Make use of a revocable trust and fund the trust to permit a
successor trustee to step into the shoes of the owner
– Make use of the 11.18 Million Estate Tax Exemption with Credit
Shelter Trusts
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Elements of the Plan
> Who Gets What? – Fair v. Equal
> Satisfy the Cashflow Needs of the Owner
> Satisfy the Owner’s Desire for Control
> Who is Entitled to Equity in the Business?
> Who is Entitled to Employment in the Business?
> Should the Company Be Retained or Sold?
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Fair v. Equal
> Children Too Young to Run Business
> Children Can Run Business
> One Child in Business – What About Others?
> Multiple Children in Business
> No One Wants the Business
> No One Can Perpetuate the Business – the Key
Person Problem
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Cashflow
> Threatening Cashflow Threatens Viability of
Succession Plan
> Focus on After Tax Cashflow and Not Source of
Funds
– A Dollar is a Dollar is a Dollar
– Rental Payments, Non-Compete Payments,
Consulting Fees, Redemption Payments, Etc. Can
Replicate Traditional Cashflow
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Control
> Ideally in the Hands of as Few People as Possible
– Need One Leader and Focal Point
> Control and Ownership Can Be Managed
– Non-Voting Interests
– Shareholder Agreements
– Voting Agreements
– Restricted Stock
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Recapitalization:
Voting and Non-Voting Stock
Class A Voting
Stock
10% Equity
100% Control
Class B Non-Voting
Stock
90% Equity
0% Control
S Corporation
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Buy-Sell Agreement
> Transfer restrictions to control ownership
> Optional or mandatory purchases on designated
triggers
> Protect S election
> Set price and terms for purchases
An arrangement for the purchase of
another equity owner’s interest upon the
occurrence of a “triggering event”
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Common Triggers
> Termination of Employment
> Death
> Transfer that results in loss of S election
> Transfer without consent or to non-permitted
transferees
> Bankruptcy
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Form of Agreement
Redemption Agreement
Cross-Purchase
Agreement
Corporation
Shareholder
A
Shareholder
B
Purchase and
Sale
Shareholder
A
Shareholder
B
Corporation
Purchase and
Sale
ProceedsProceeds Stock
Stock
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Form of Agreement
Agreement Terms Redemption Cross-Purchase
Purchaser Company is
Purchaser
Individual
Shareholders are
Purchasers
Source of Price Paid with Company
Assets
Paid with Individual
Assets
Life Insurance Owned by the
Company (1 Policy
Per Shareholder)
Multiple Policies
Owned by Each
Shareholder
Ownership Change
After Purchase
Proportionately
increases percentages
of remaining owners
Can customize whose
percentages increase
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Form of Agreement
Agreement Terms Redemption Cross-Purchase
Basis Increase Remaining owners do
not get a basis
increase
Purchasers get a
basis increase
Taxation Potential dividend
issue
Clear capital gains
treatment to seller
Certainty One transaction with
more certainty of
purchase being
consummated
Multiple purchases
and greater chance of
default
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Hybrid Agreement
> Combination of Elements of Cross-Purchase and
Redemption
– Company has the first option, other owners the
second option, or the reverse
> Adds flexibility to determine best option at the time
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Restricted Stock
> S Corp Purposes
– Not Treated as
Outstanding
– No Income
Allocated with
Respect to Shares
– Distributions
Treated as
Deductible
Compensation
> State Law Purposes
– Treated as
Outstanding
– Shareholder Entitled
to Distributions or
Dividends
Unregistered stock that is not transferrable for a period of time
and generally becomes transferable under a vesting schedule.
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Equity
> Ideally Suited for Actively Employed Family Members
– Non-Active Members Receive Other Assets or Non-
Voting Interests
– Problems with Distributions to Passive Members
> Non-Family Members
– Preference for Phantom or Synthetic Equity
– Difficult to Meet Expectations
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Employment
> Opportunity v. Obligation v. Birthright
> Merit Based Hiring
– Some Families Require Outside Employment Before
Returning to Family Business
> Compensation of Family Members Often Problematic
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Retention v. Sale
> Rarely Discussed Openly Although Often
Contemplated
> Managing Valuation Expectations
– After-Tax Proceeds May Not Replicate Pre-Sale
Cashflow – Need to Model
– Counsel should be involved well before a sale to
create a structure to minimize potential taxes
(income/estate/gift)
> Valuation Conundrum
– Retention – Keep Value as Low as Possible
– Sale – Maximize Value in Sale to 3rd Party
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Obstacles to Sale
> Unrealistic expectation of value
> Lack of qualified buyers
> Need for pre-sale planning
> Excessive reliance on business owner’s capabilities,
traits, good-will, etc.
> Hesitancy to part with symbol of significance and
prestige
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Wealth Transfer Planning
Considerations and Opportunities
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Wealth Transfer Planning Tools
Wealth Transfer Tax Exemptions
Estate and Gift Tax Exemption
$11,180,000 in 2018
Deceased Spouse Unused
Exemption Portability
GST Tax Exemption
$11,180,000 in 2018
Wealth Transfer Tax Exclusions
Gift Tax Annual
Exclusion - $15,000
Per Person Per Year
or $30,000 for a
Married Couple
Direct Payment of
Qualified Tuition
Payments and
Medical Expense –
Must Be Paid Directly
to Provider
529 Plan Election –
Front Load 5 Years
Worth of Gift Tax
Annual Exclusion in 1
Year - 5 x $15,000 =
$75,000
Qualified
Conservation
Easement Exclusion
of Up to $500,000 of
Value at Death
Family Farm
Exclusion of Up to
$1,140,000 of Value
of Real Estate Used
in Active Operation of
Family Farm
Wealth Transfer Tax Deductions
Marital Deduction for
Transfers to Spouse
(Outright or in Trust)
Unlimited for U.S. Spouse /
$152,000 for Foreign
Spouse
Charitable Deduction for
Transfers to Charity
(Outright or in Trust)
Deduction for Estate
Administration Expenses
Deduction for Interest on
Estate Tax (Including
Graegin Loan Interest)
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Estate, Gift and GST Tax:
Past and Present
Year 2012 2013 2014 2015 2016 2017 2018
Estate/Gift Tax
Exemption
$5.12M $5.25M $5.34M $5.43M $5.45M $5.49M $11,180M
Tax Rate 35% 40% 40% 40% 40% 40% 40%
GST Tax
Exemption
$5.12M $5.25M $5.34M $5.43M $5.45M $5.49M $11,180M
Tax Rate 35% 40% 40% 40% 40% 40% 40%
Gift Tax Annual
Exclusion
$13,000 $14,000 $14,000 $14,000 $14,000 $14,000 $15,000
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Planning Techniques by Asset Class
Personal Real Estate
Qualified Personal Residence
Trust
Sale-Leaseback to Grantor Trust
Family Limited Partnership/LLC
Remainder Interest to Charity
Investment Real Estate
Family Limited Partnership/LLC
Sale to Grantor Trust
Grantor Retained Annuity Trust
Preferred Partnership
Conservation Easement
Charitable Remainder Trust
Charitable Lead Trust
Closely Held Businesses
Sale to Grantor Trust
Grantor Retained Annuity Trust
Family Limited Partnership/LLC
Buy-Sell Agreement Planning
Charitable Remainder Trust
Publicly Traded Stock
Grantor Retained Annuity Trust
Family Limited Partnership/LLC
Charitable Remainder Trust
Charitable Lead Trust
Retirement Plan Assets
Planning for Income Tax Deferral
Roth IRA Conversion
Charitable Beneficiary Designation
Charitable Remainder Trust
Life Insurance
Irrevocable Life Insurance Trust
Sale to Grantor Trust
Grantor Retained Annuity Trust
Premium Financing/Split-Dollar
Gift to Charity of Policy/Premiums
Non-Qualified Deferred
Compensation
Planning for Income Tax Deferral
Roth IRA Conversion
Alternative Assets
Sale to Grantor Trust
Grantor Retained Annuity Trust
Family Limited Partnership/LLC
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TECHNIQUES BY STRATEGYFreezing Strategies
Outright Gift
Intra-Family Loans (AFR)
Grantor Retained Annuity Trust
Sale to Grantor Trust
Qualified Personal Residence
Trust
Preferred Partnership
Buy-Sell Agreement Planning
Charitable Lead Annuity Trust
Discount Strategies
Family Limited Partnership/LLC
Preferred Partnership
Buy-Sell Agreement Planning
Fractional Interest Discounts
Qualified Personal Residence
Trust
Liquidity Planning
Irrevocable Life Insurance Trust
Planning for Section 6166/2032A
Graegin Loan Planning
Self-Canceling Installment Note
Charitable Strategies
Outright Gift to Charity
Private Foundation
Donor Advised Fund
Supporting Organization
Charitable Remainder Trust
Charitable Lead Trust
Charitable Gift Annuity
Remainder Interest in
Residence
Diversification Strategies
Charitable Remainder Trust
Exchange Fund
Margin Loan and Gift of Cash
Asset Protection Strategies
Re-Titling of Assets
Family Limited Partnership/LLC
Qualified Plan and IRA Planning
Self-Settled Spendthrift Trusts
Leveraging Strategies
Grantor Retained Annuity Trust
Sale to Grantor Trust
Qualified Personal Residence Trust
Charitable Lead Trust
Charitable Remainder Trust
Irrevocable Life Insurance Trust
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Valuation Basics
> Value For Estate and Gift Tax Purposes
– What a Hypothetical Willing Buyer Would Pay a
Hypothetical Willing Seller, Neither Being Under Any
Compulsion to Buy or Sell, and Both Having
Knowledge of All Reasonable Facts and
Circumstances
– Value is Further Adjusted for Discounts and Control
Premiums
• Lack of Marketability, Lack of Control, Fractional
Interest, Market Absorption, and Key Person
Discounts
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Valuation Example
> Client Died Owning a 25% Interest in a Closely Held
Business
– 25% Interest Valued at $16 Million
– Estate Tax Paid on $16 Million Value
– 18 Months Later – Company Sold for $300 Million
– Estate/Beneficiaries Received a Total of $75 Million
> No Surprise, The IRS Had Some Questions About the
Valuation….
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Valuation Example
25% Interest
$16 Million
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Valuation Example
25% Interest
$16 Million
$64
Million
25% Interest
$16 Million
25% Interest
$16 Million
25% Interest
$16 Million
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Valuation Example
25% Interest
$16 Million
$64
Million
25% Interest
$16 Million
25% Interest
$16 Million
25% Interest
$16 Million
Add Back Lack of Control and Lack of Marketability Discounts
$36 Million
$100
Million
4x
$25MM
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Valuation Example
25% Interest
$16 Million
$64
Million
25% Interest
$16 Million
25% Interest
$16 Million
25% Interest
$16 Million
Add Back Lack of Control and Lack of Marketability Discounts
$36 Million
$100
Million
Improvement in Operations and Market Multiples
$80 Million
$180
Million
6x
$30MM
4x
$25MM
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Valuation Example
25% Interest
$16 Million
$64
Million
25% Interest
$16 Million
25% Interest
$16 Million
25% Interest
$16 Million
Add Back Lack of Control and Lack of Marketability Discounts
$36 Million
$100
Million
Improvement in Operations and Market Multiples
$80 Million
$180
Million
Premium Paid By Financial Purchaser
$60 Million
$240
Million8x
6x
$30MM
4x
$25MM
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Valuation Example
25% Interest
$16 Million
$64
Million
25% Interest
$16 Million
25% Interest
$16 Million
25% Interest
$16 Million
Add Back Lack of Control and Lack of Marketability Discounts
$36 Million
$100
Million
Improvement in Operations and Market Multiples
$80 Million
$180
Million
Premium Paid By Financial Purchaser
$60 Million
$240
Million
Premium Paid By Strategic Purchaser
$60 Million
$300
Million10x
8x
6x
$30MM
4x
$25MM
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How Close Can You Get?
> Planning During a Pending Deal
– Sale of Company is Foreseeable
– However, No Certainty that Transaction Will Close
– Is Planning Possible?
• Methodology
• Risks
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Merger Arbitrage Data
> Merger Arbitrage Data
– Deal Value / No-Deal Value
– Delay Between Announcement and Closing
– Likelihood of Deal Unraveling
• Financing
• Shareholder Approval
• Regulatory Approval
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Merger Arbitrage
Pre-Transaction
FMV
$10 / Share
Transaction Value
$20 / Share
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Merger Arbitrage
Pre-Transaction
FMV
$10 / Share
Transaction Value
$20 / ShareMerger Uncertainty
$17 / Share
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Merger Arbitrage
Pre-Transaction
FMV
$10 / Share
Transaction Value
$20 / Share
See, Robak, “Estate Planning and the Pending Deal: Lessons from the Merger Arbitrage Market”, 31 ACTEC
Journal 338 (2006)
Days to
Close
Price
42 $18.99
191 $17.23
136 $16.92
205 $16.03
Merger Uncertainty
$17 / Share
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What and How To Gift?
> Gift Easy to Value Assets
– Cash/Securities
– Later Substitution in Grantor Trust
> Carefully Gift Hard to Value Assets
– Defined Value Clause
– Adequately Disclose Gifts and Non-Gifts
> Assets Over Which Control May Be Retained
– Non-Voting Interests in Business Entities
– Control with Buy-Sell Agreements
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Grantor Trust Taxation
Income Earned on
Assets Taxedto Client
During His Lifetime
Assets Excluded from Client’s Estate at His Death
Grantor Trust
A Grantor Trust, sometimes called an “Intentionally Defective Grantor
Trust” is an irrevocable trust used to freeze certain assets of an
individual for estate tax purposes but not income tax purposes.
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Tax Treatment
> Rev. Rul. 85-13 – Transactions Between Grantor and
Grantor Trust Disregarded
> Rev. Rul. 2004-64 – Payment of Income Tax Liability
Not a Gift/No Inclusion
> Rev. Rul. 2007-13 – Insurance / Sec 101
> Notice 2007-73 – “Toggling”
> Rev. Rul. 2008-22 – Substitution Power Does Not
Cause Inclusion Under 2036 or 2038
> Rev. Rul. 2011-28 – Substitution Power Does Not
Cause Inclusion Under 2042
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Gift to Grantor Trust
Client
Grantor Trust• Gift Easy to Value Assets, Such as
Cash or Marketable Securities
• Uses Client’s Gift and GST Exemption
• Assets Excluded from Estate for
Estate Tax Purposes
• Client Treated as Owner of Assets for
Income Tax Purposes
• Client Retains “Substitution Power” to
Replace Cash and Securities with
Harder to Value Assets
• Timing on Valuation
• Management of Valuation Risk
• Dynasty Trust Structure
Spouse, Children and Other
Beneficiaries
Gift Cash
or
Securitie
s
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Substitution Power Grantor Trust
Client
Grantor Trust• Gift Easy to Value Assets, Such as
Cash or Marketable Securities
• Uses Client’s Gift and GST Exemption
for
• Assets Excluded from Estate for
Estate Tax Purposes
• Client Treated as Owner of Assets for
Income Tax Purposes
• Client Retains “Substitution Power” to
Replace Cash and Securities with
Harder to Value Assets
• Timing on Valuation
• Management of Valuation Risk
• Dynasty Trust Structure
Closely Held
Asset
Cash/Securities
Spouse, Children and Other
Beneficiaries
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Swap
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Sale to Grantor Trust
Client
Grantor Trust• Funded with Gift of 10% of Anticipated
Purchase Price (Uses Gift and GST
Exemption)
• Assets Excluded from Estate for
Estate Tax Purposes
• Client Treated as Owner of Assets for
Income Tax Purposes
• Cashflow Received from Purchased
Asset Used to Make Interest and
Principal Payments on Promissory
Note
• Excess Cashflow Can Be Distributed
to Beneficiaries or Used to Purchase
Life Insurance
• Dynasty Trust Structure
Stock/LLC/LP
Unit
Promissory NoteMid-Term AFR @ 1.81%
Spouse, Children and Other
Beneficiaries
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• No Capital Gain on Sale to Grantor Trust
• No Gift on Sale Because Fair Value is
Exchanged
• Gift to Trust Leveraged 9:1
Sale
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Defined Value Clause
Client Defective Grantor Trust
$10X
Traditional
Gift/Sale
A defined value clause limits the quantity of assets gifted or sold
until a final determination of value is made. The exact quantity of
assets transferred remains uncertain until values are finally
determined for federal gift tax purposes (i.e., when the federal gift tax
statute of limitations expires or when the IRS challenges the value
and this challenge is resolved).
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Defined Value Clause
Client Defective Grantor Trust
$10X
Traditional
Sale
Potential Gift if
Asset Valued at
More Than $10X
Instead of fixing both value and quantity
up-front, a defined value clause fixes only
the pecuniary value of the gift or sale
transaction.
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Defined Value Clause
Client Defective Grantor Trust
$10X
Tax Neutral Trust
Assets in Excess of
$10X
Defined Value
Clause
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Excess Value Trusts
> Potential Tax-Neutral (or Beneficial) Recipients of
Excess Value
– Charity
– Zeroed out GRAT
– Marital Trust
– Incomplete Gift Trust
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Applicable Case Law
> Commissioner v. Procter, 142 F.2d 824 (4th Cir. 1944)
> King v. United States, 545 F.2d 700 (10th Cir. 1976)
> Succession of McCord v. Commissioner, 120 T.C. No.
13 (2003), rev’d, 461 F.3d 614 (5th Cir. 2006)
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Applicable Case Law
> Christiansen v. Commissioner, 130 T.C. No. 1 (2008),
aff’d 586 F.3d 1061 (8th Cir. 2009)
> Petter v. Commissioner, T.C. Memo. 2009-820, aff’d
653 F.3d 1012 (9th Cir. 2011)
> Hendrix v. Commissioner, T.C. Memo. 2011-133
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Finality on Gift Tax Return
> Adequate Disclosure of Gift on Gift Tax Return
– 3 Year Statute of Limitations
> What Constitutes Adequate Disclosure
– A description of the transferred property and any
consideration received by the donor
– Identity and relationship of donor and donee
– Copy of the trust and EIN
– Method used to determine FMV of property or a
qualified appraisal
– Statement describing any position that is contrary to
any Treasury regulation or revenue ruling
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Finality on Gift Tax Return
> If Discount Applied to FMV of Gift
– Amount of the discount and the basis for applying the
discount must be described.
– In addition, the donor must affirmatively answer “Yes”
to Question A of Schedule A of the gift tax return any
time a discount is claimed to notify the IRS that a
valuation discount is claimed.
– The failure to accurately answer Question A may
cause the discounted gift to be treated as not being
adequately disclosed.
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Grantor Retained Annuity Trust “GRAT”
>Zeroed-Out GRAT
– Short Term Trust
– Large Annuity Payments• “Zeroes-Out” Gift
– IRS Regulations, Amended in 2003, Specifically Approve of This Planning Technique
An irrevocable trust used by individuals to
make large gifts to family members without
paying gift tax.
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Grantor Retained Annuity Trust
Grantor Retained Annuity
Trust
•Funded with $10 Million
•Two Year Term
•Assume 2.2% Section 7520 Rate
•Assume Asset Sold Within 12 Months
for $25 Million
•Taxable Gift of $1
Distribution to Children
$14,658,740
Client
Year 2 Annuity Payment
$5,640,687
Year 1 Annuity Payment
$4,700,573
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GRAT Self-Adjustment
> A well-drafted GRAT will self-correct the annuity
payments (and thus the gift) based on the value of
the asset contributed
– “The Trustee shall pay to me an Annuity Amount equal to
47.00573% of the initial value of the trust assets contributed to
the GRAT, as finally determined for federal gift tax purposes.”
Value of
Contributed
Asset
1st Annuity
Payment
2nd Annuity
Payment
Taxable Gift
$10,000,000 $4,700,573 $5,640,687 $1.00
565656
GRAT Self-Adjustment
> A well-drafted GRAT will self-correct the annuity
payments (and thus the gift) based on the value of
the asset contributed
– “The Trustee shall pay to me an Annuity Amount equal to
47.00573% of the initial value of the trust assets contributed to
the GRAT, as finally determined for federal gift tax purposes.”
Value of
Contributed
Asset
1st Annuity
Payment
2nd Annuity
Payment
Taxable Gift
$10,000,000 $4,700,573 $5,640,687 $1.00
$25,000,000 $11,751,432 $14,101,717 $2.50
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Irrevocable Life Insurance Trust
Irrevocable Life Insurance Trust• Owner and Beneficiary of Life Insurance
• Client Retains No Incidents of
Ownership
• Premiums Gifted to Trust
• Beneficiaries Have Rights of Withdrawal
• No Estate Tax on Insurance Proceeds
• Mirrors Estate Planning Documents
ClientLife Insurance
Co.
57
Life
Insurance
Policy
Spouse
$5,000
Child
$30,000
Crummey Withdrawal Rights
$65,000
Cash
Child
$30,000
$65,000
Cash
A non-modifiable trust that owns one or more life insurance policies, therefore
removing the policies from the owner’s estate
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Dynasty Trust
• Transfer Assets in Trust for Multiple Generations
• Avoids Application of Estate Tax at Each Generation
• Assets Not Subject to Claims of Creditors
– Ex-Spouses, Contract Creditors, Tort Creditors
• Trust Can Serve as the “Family Bank”
– Lend to Beneficiaries for Residences
– Venture Capital for New Business Ventures and
Opportunities
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An irrevocable trust designed to transfer significant
wealth to family members
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Dynasty Trust Economics
No Dynasty Trust Dynasty Trust
Initial Gift in 2015 $10,860,000.00 $10,860,000.00
Value in 2045 $46,936,294.19 $46,936,294.19
Estate Tax $18,774,517.68 $0
Net Value $28,161,776.52 $46,936,294.19
Value in 2075 $121,713,575.29 $202,855,958.81
Estate Tax $48,685,430.11 $0
Net Value $73,028,145.17 $202,855,958.81
Value in 2105 $315,623,435.20 $876,731,764.43
Estate Tax $126,249,374.08 $0
Ending Value $189,374,061.12 $876,731,764.43
Value in 2135 $818,463,779.50 $3,789,184,164.35
Estate Tax $327,385,511.80 $0
Ending Value $491,078,267.70 $3,789,184,164.35 Assumptions$10.86 Million Gift in Trust in 2015Estate Tax at 40% Tax Rate Applicable Every 30 YearsNet 5% Annual Growth Of Assets (8% Gross Return and 3% Distribution to Beneficiaries)
59
772% More Transferred
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Dynasty Trust
GST Exempt Dynasty Trust
•Funded with $10.86 Million (2 x Gift
Tax Exemption)
•Allocate $10.86 Million GST Tax
Exemption
•Distributions to Children, Grand-
Children, and Remote Descendants
• Support, Health, Education,
and Maintenance
• Independent Trustee Can Make
Distributions for Any Purpose
•Loans for Purchase of Residence or
New Business
•Waives “Rule Against Perpetuities”
Children
Grandchildren
Great-
Grandchildren
Great-Great-
Grandchildren
Great-Great-Great-
Grandchildren
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Charitable Giving Strategies
> Charitable Remainder Trust
> Donor Advised Fund
> Supporting Organization
> Charitable Lead Trust
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Charitable Remainder Annuity Trust
Charitable Remainder Annuity Trust
•Lifetime Trust for Client, Age 75
•Initially funded with $1,000,000 asset
•CRAT sells asset / CRAT is tax-exempt
•$50,000 Annual Payment
•$536,685 Gift to Charity
•Assume 8% Growth
•Assume 11 Year Life Expectancy
•2.2% Section 7520 Rate
Client
$550,000
Annual Payment
$50,000
Charity
$1,499,364
Payments for
Client’s Life
Client’s Death
636363
Donor Advised Funds
Donor Advised Fund
(e.g., The Community Foundation
Serving Richmond and Central
Virginia)
DonorGift of
Appreciated
Assets
Charitable
Deduction
Advisory Privilege to
Recommend Grants
to Charities
Credited with
Gifted Assets
Donor’s Family
Charitable Fund
Charity
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Supporting Organization
Donor Advised Fund
Smith Family Foundation
(Supporting Organization)Investments
Charitable
Organizations
Community Foundation/DAF
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Charitable Lead Annuity Trusts
Charitable Lead Annuity Trust
•25 Year Term
•Initially funded with $1,000,000 asset
•Taxable gift of $0 to Family
•$1,000,000 Gift to Charity
•Assume 8% Annual Growth
•Assume 2.2% Section 7520 Rate
Charity
$1,311,000
Annual Payment
$52,440
Client’s Family
$3,014,799
25 Years
End of 25 Year Term
65
66
QUESTIONS
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James Philip HeadWilliams Mullen
8300 Greensboro Drive
Suite 1100
Tysons Corner, Virginia 22102
703.760.5231
www.williamsmullen.com
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Jim Head represents individuals and owners of closely held businesses in the
areas of estate planning, estate and trust administration, fiduciary litigation,
tax, gift and estate tax controversy, business planning, and other general
business law matters. He regularly structures and implements business
succession and transactional strategies for privately held companies,
business owners, government contractors, and entrepreneurs to build,
preserve, and transfer the value of their companies and personal net worth.
Jim also represents banks and fiduciaries in state courts throughout Virginia,
Maryland, and the District of Columbia with respect to all areas of trust and
estate disputes, including breach of fiduciary duty, will and trust interpretation,
will contests, lost wills, and trust modifications.
Jim is listed in The Best Lawyers in America© for Trusts & Estates and Tax
Law (2016-present) and as a 2018 Super Lawyer for Virginia and Washington,
D.C. in Estate & Probate Law. He was also honored to be listed in the 2005-
2008 editions of Who’s Who in American Law and has been included
in several editions of Who’s Who in America, including from 2013 to 2015,
and in Who’s Who in Emerging Leaders for 2007. In 2007, Jim was named
one of the top up-and-coming lawyers in the state by Virginia Super Lawyers
Rising Stars magazine.
He received a master of laws in taxation degree from Georgetown University
Law Center in 2000 and graduated with honors in 1995 from the George
Washington University National Law Center. While in law school, Jim was the
managing editor of The Environmental Lawyer. He is a 1992 magna cum
laude graduate of the University of Maryland, where he earned his bachelor of
arts degree in economics.
JAMES PHILIP HEAD