Leimberg Estate Planning Newsletter #2445 August 10, 2016 TITLED:

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Presentation transcript:

Leimberg Estate Planning Newsletter #2445 August 10, 2016 TITLED: Proposed Code §2704 Regulations: What’s All of the Hoopla About? For Rep/Agent Use Only.

Proposed Code §2704 Regulations Example Effect in 20-years Proposed Code §2704 Regs. $10M gift to Dynasty Trust $10M Lifetime Gift & GST Exemptions 5% pre-tax return Two Scenarios With (25%) and Without Discount

Proposed Code §2704 Regulations Two scenarios: 25% discount (gift $13.333M, $10M net) Assets FMV $13,333,333 25% Discount <$ 3,333,333> Net gift $10,000,000 No discount (gift $10M, $10M net gift) Assets FMV $10,000,000 0% Discount <$ 0>

Reduction Due To Loss of Discounts #2445 Example –Year 20 Net to Family Scenario Dynasty Trust With Discount (25%) $35.4M No Discount $26.5M Reduction Due To Loss of Discounts <$8.9M>

#2445 Example Critique Overlooked two very important factors: The two scenarios used different amounts The discount scenario uses $13.333M The no discount scenario uses $10M What happened to the other $3.333M of assets? Only looked at the effect on the Dynasty Trust But what is the effect on the Grantor The grantor’s estate The net to family from the grantor’s estate

Reduction Due To Loss of Discounts Correct Example – Year 20 Scenario Dynasty Trust From Estate Net to Family With Discount (25%) $35.4M <$4.5M> $30.9M No Discount $26.5M $.8M $27.3M Reduction Due To Loss of Discounts <$8.9M> $5.3M <3.5M>

Net to Family With and Without Discounts

Net to Family - No Discounts With & Without LI

Compared to “Do Nothing” Scenario Net to Family Do Nothing Improve Due to Planning With Discount (25%) $30.9M $20.7M $10.2M No Discount $27.3M $6.6M

Compared to “Do Nothing” Scenario Net to Family Do Nothing Improve Due to Planning With Discount (25%) Dynasty Trust $30.9M $35.4M $20.7M $10M $10.2M $25.4M No Discount $27.3M $26.5M $6.6M $16.5M

Going Forward Consider two important situations: Gift of assets Cash flow may be used to pay full premiums. Split dollar can enhance the wealth transfer. Sale of Assets Cash flow will be used first to service the note. Remaining cash flow may not be sufficient to pay the insurance premiums as well. Split dollar may be required.