Tax Planned Wills and Lifetime Wealth Transfer Planning Strategies for High Net-Worth IndividualsNolan A. Moullé, IIISenior AssociateFulbright & Jaworski LLPOctober 3, 2014

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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

Marital TrustGift in excess of “Exemption

Amount” to QTIP Trust for Wife

Family Trust“Exemption Amount” to Family Trust for Wife &

Descendants

Wife’s Death(Less estate tax due on Wife’s death for Management Trust

portion)

Wife’s Death(Less estate tax due on Wife’s death for

Marital Trust portion)

Wife’s Death(No tax due on Wife’s death for

Family Trust portion)

Year(s) Amount2014 $5,340,000

“Exemption Amount” and

“GST Exemption” (reduced by lifetime gifts)

GST =

QTIP =

Generation-Skipping Transfer TaxQualified Terminable Interest Property Trust (qualifies for marital deduction)

Descendants’ Trusts

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Lifetime Giving StrategiesI. 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 GiftsI. Outright Gifts

A. Immediate Control for Beneficiary B. What to do if Beneficiary is a Minor

II. Crummey TrustsA. Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968)B. Lapsing Withdrawal RightC. Notice to Beneficiary

III. 2503(c) TrustsA. No Need for Withdrawal RightsB. Must Terminate at Age 21C. Only One BeneficiaryD. Must Pay to Estate of Beneficiary if Beneficiary Dies Before

Obtaining Age 21IV. GST Issues with Crummey Trusts and 2503(c) Trusts

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Irrevocable Life Insurance TrustsI. 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 ILITPurchase 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

I. DefinitionII. Mechanics

A. Grantor Transfers Property to GRATB. GRAT Makes Annual Payments to GrantorC. Value of Payments Typically Based Upon FormulaD. Remainder to Beneficiaries

III. Walton v. Commissioner, 115 T.C. 589 (2000): Zeroed-Out GRATIV. Benefits of GRATS

A. Low Valuation RiskB. Good for Assets with Explosive Growth Potential

V. GST Issues

Beneficiaries

Grantor

Transfer Property

Annuity Stream

Remainder

GRAT

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Ten-Year Level-Payment GRAT Calculations

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Grantor TrustsI. 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

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

GP LLC Limited Partners

FLP

99% LP1% GP

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

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