Tax Planned Wills and Lifetime Wealth Transfer Planning

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 2

Exemptions From Transfer Taxes Estate. . . . $5. 34 Million* Gift. . . . $5. 34 Million* GST. . . . $5. 34 Million* * Indexed for Inflation 3

Estate Tax Deferral I. Marital Deduction II. Deceased Spouse Unused Exclusion Amount (DSUEA) III. Tax Planned Wills/Revocable Trusts 4

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’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 5 Generation. Skipping 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) 6

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. 2 d 82 (9 th 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 7

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 8

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. 9 A. Low Valuation Risk B. Good for Assets with Explosive Growth Potential GST Issues

Ten-Year Level-Payment GRAT Calculations 10

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 11

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 12

Speaker Information Nolan A. Moullé, III Senior Associate 13 nolan. moulle@nortonrosefulbright. com 713 -651 -5488

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