Tax Planned Wills and Lifetime Wealth Transfer
Planning Strategies for High Net-Worth Individuals
Nolan A. Moullé, III
Senior Associate
Fulbright & Jaworski LLP
October 3, 2014
Types of Transfer Taxes
I.
Estate Tax
II.
Gift Tax
III. Generation-Skipping Transfer Tax
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Exemptions From Transfer Taxes
Estate . . . . . . . . . . . . . . . . $5.34 Million*
Gift . . . . . . . . . . . . . . . . . . $5.34 Million*
GST . . . . . . . . . . . . . . . . . $5.34 Million*
* Indexed for Inflation
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Estate Tax Deferral
I.
Marital Deduction
II.
Deceased Spouse Unused Exclusion Amount (DSUEA)
III. Tax Planned Wills/Revocable Trusts
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Husband and Wife Revocable Trust
Husband and Wife Revocable Trust
Assumes Husband dies first
Husband’s Share
Management Trust
GST =
QTIP =
Family Trust
“Exemption Amount” to
Family Trust for Wife &
Descendants
Wife’s Death
(No tax due on
Wife’s death for
Family Trust
portion)
Marital Trust
Gift in excess of “Exemption
Amount” to QTIP Trust for
Wife
Wife’s Death
(Less estate tax due
on Wife’s death for
Marital Trust portion)
Wife’s Death
(Less estate tax due
on Wife’s death for
Management Trust
portion)
“Exemption Amount”
and
“GST Exemption”
(reduced by lifetime gifts)
Year(s)
2014
Descendants’ Trusts
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GenerationSkipping
Transfer Tax
Qualified
Terminable
Interest
Property Trust
(qualifies for
marital
deduction)
Amount
$5,340,000
Lifetime Giving Strategies
I.
Annual Exclusion Gifts ($14,000)
A. Outright Gifts
B. Crummey Trusts
C. 2503(c) Trusts
II.
Irrevocable Life Insurance Trusts (ILITs)
III. Grantor Retained Annuity Trusts (GRATs)
IV. Grantor Trusts
V. Family Limited Partnerships (FLPs)
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Annual Exclusion Gifts
I.
Outright Gifts
A. Immediate Control for Beneficiary
B. What to do if Beneficiary is a Minor
II. Crummey Trusts
A. Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968)
B. Lapsing Withdrawal Right
C. Notice to Beneficiary
III. 2503(c) Trusts
A. No Need for Withdrawal Rights
B. Must Terminate at Age 21
C. Only One Beneficiary
D. Must Pay to Estate of Beneficiary if Beneficiary Dies Before
Obtaining Age 21
IV. GST Issues with Crummey Trusts and 2503(c) Trusts
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Irrevocable Life Insurance Trusts
I.
Why Utilize? Avoids “Incidents of Ownership” Over Life Insurance.
II.
Annual Exclusion Funding?
A. May Depend on Type of Life Insurance Purchased
B. Lapsing Rights and Hanging Powers
Example: $14,000 Annual Exclusion Gift to ILIT
Purchase of Term Policy with $14,000 Annual Premium
$5,000 / $9,000 Hanging Power
III. Trustee Selection
IV. Beneficiary Selection
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Grantor Retained Annuity Trusts
Transfer Property
Grantor
Annuity Stream
GRAT
Remainder
I.
Definition
II.
Mechanics
Beneficiaries
A.
Grantor Transfers Property to GRAT
B.
GRAT Makes Annual Payments to Grantor
C.
Value of Payments Typically Based Upon Formula
D.
Remainder to Beneficiaries
III.
Walton v. Commissioner, 115 T.C. 589 (2000): Zeroed-Out GRAT
IV.
Benefits of GRATS
V.
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A.
Low Valuation Risk
B.
Good for Assets with Explosive Growth Potential
GST Issues
Ten-Year Level-Payment GRAT Calculations
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Grantor Trusts
I.
History
II.
I.R.C. §§ 671 – 679
III. Grantor Pays Tax
IV. Typical Grantor Trust Triggers
A. Power of Substitution
B. Power to Lend
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Family Limited Partnerships
Limited
Partners
GP LLC
99% LP
1% GP
FLP
I.
Basic Structure
II.
Gifts/Sales of LP Interests
A. Grantor Trust as Recipient
B. AFR Note
C. Marketability/Minority Discounts
D. Appraisal of Interests
III. Business Purpose
IV. I.R.C. §§ 2036 & 2038
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Speaker Information
Nolan A. Moullé, III
Senior Associate
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nolan.moulle@nortonrosefulbright.com
713-651-5488
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