KUGLER SYSTEM THE The Continuing Usefulness of GRATs Presented by: Frank L. Rainaldi, CLU, ChFC

KUGLER SYSTEM THE Analysis of Long Term Maximum Annuity GRAT Calculation Initial Value of Asset Transferred to GRAT $1,000,000 Present Value of $93, year Annuity $1,000,000 Present Value of Remainder Interest $0

KUGLER SYSTEM THE Taxable Gift Calculation for Term Certain GRAT $1,000,000 (1, ) Gift $0 Initial value of asset transferred to GRAT Present Value of 15-year $96,342 annuity interest retained by Grantor Present value of remainder interest

KUGLER SYSTEM THE $1,000,000 (73,173) 926,827 Gift $73,173 Taxable Gift Calculation for Reversionary GRAT Initial Value of 15-year $96,342 annuity interest retained by Grantor Less Discount for probability of Grantor (age 55) dying during 15-year period Present Value of Grantor’s retained annuity interest Present value of remainder interest Taxable Gift Calculation for Term Certain GRAT $1,000,000 (1, ) Gift $0 Initial value of asset transferred to GRAT Present Value of 15-year $96,342 annuity interest retained by Grantor Present value of remainder interest

KUGLER SYSTEM THE Year GRAT Hypothetical Illustration #5 Beginning Balance $1,000, , , , , , , , , , , , , ,140 91,755 Less: Annuity Payment ($96,342) (96,342) Annuity Payment: $96,342 Assumed Appreciation Rate: 5% Ending Balance $953, , , , , , , , , , , , ,140 91,755 (0) Plus 5% Appreciation $50,000 47,683 45,250 42,695 40,013 37,196 34,239 31,134 27,874 24,450 20,856 17,081 13,118 8,957 4,588

KUGLER SYSTEM THE Beginning Balance $1,500,000 1,430,486 1,357,497 1,280,859 1,200,388 1,115,894 1,027, , , , , , , , ,632 Less: Annuity Payment ($96,342) (96,342) Annuity Payment: $96,342 Assumed Appreciation Rate: 5% Ending Balance $1,430,486 1,357,497 1,280,859 1,200,388 1,115,894 1,027, , , , , , , , ,632 (0) Plus 5% Appreciation $75,000 71,524 67,875 64,043 60,019 55,795 51,359 46,701 41,810 36,675 31,283 25,622 19,677 13,435 6,882 Balance Prior to Annuity Distribution $1,575,000 1,502,011 1,425,372 1,344,902 1,260,408 1,171,689 1,078, , , , , , , , ,513 Principal Distributed For Annuity (144,513) GRAT Hypothetical Illustration #6 Year

KUGLER SYSTEM THE Beginning Balance $1,500,000 1,514,674 1,530,905 1,548,859 1,568,718 1,590,685 1,614,983 1,641,860 1,671,589 1,704,473 1,740,847 1,781,081 1,825,584 1,874,811 1,929,262 Less: Annuity Payment ($96,342) (96,342) Annuity Payment: $96,342 Assumed Appreciation Rate: 5% Plus Appreciation $45,000 45,440 45,927 46,466 47,062 47,721 48,450 49,256 50,148 51,134 52,225 53,432 54,768 56,244 57,8778 Less Income Used For Annuity Payment (76,125) (76,870) (77,693) (78,605) (79,612) (80,727) (81,960) (83,324) (84,833) (86,502) (88,348) (90,390) (92,648) (95,147) (96,342) Principal Distributed For Annuity Shortfall ($30,326) (29,209) (27,973) (26,607) (25,095) (23,423) (21,573) (19,527) (17,264) (14,760) (11,991) (8,929) (5,541) (1,793) - Shortfall ($20,217) (19,473) (18,649) (17,738) (16,730) (15,615) (14,382) (13,018) (11,509) (9,840) (7,994) (5,952) (3,694) (1,196) - GRAT Hypothetical Illustration #7 Ending Balance $1,514,674 1,530,905 1,548,859 1,568,718 1,590,685 1,614,983 1,641,860 1,671,589 1,704,473 1,740,847 1,781,081 1,825,584 1,874,811 1,929,262 1,988,708 Plus 5% Income ($76,125) (76,870) (77,693) (78,605) (79,612) (80,727) (81,960) (83,324) (84,833) (86,502) (88,348) (90,390) (92,648) (95,147) (97,910)

KUGLER SYSTEM THE Year GRAT Hypothetical Illustration #8 Beginning Balance $1,500,000 1,547,620 1,599,811 1,657,010 1,719,699 1,788,405 1,863,705 1,946,232 2,036,679 2,135,807 2,244,449 2,363,518 2,494,014 2,637,035 2,793,782 Less: Annuity Payment ($96,342) (96,342) Annuity Payment: $96,342 Assumed Appreciation Rate: 3% Ending Balance $1,547,620 1,599,811 1,657,010 1,719,699 1,788,405 1,863,705 1,946,232 2,036,679 2,135,807 2,244,449 2,363,518 2,494,014 2,637,035 2,793,782 2,965,573 Plus 6.5% Income $98, , , , , , , , , , , , , , ,320 Plus 3% Appreciation $45,000 46,429 47,994 49,710 51,591 53,652 55,911 58,387 61,100 64,074 67,333 70,906 74,820 79,111 83,813

KUGLER SYSTEM THE Taxable Gift Calculation $1,000,000 (1,000,000) Gift $0 Initial value of asset transferred to GRAT Present Value of 15-year $96,000 annuity interest retained by Grantor Present value of remainder interest Long Term Maximum Term Certain GRAT

KUGLER SYSTEM THE Transfer of “S” Corporation Stock to GRAT Long-Term Maximum Annuity Term Certain GRAT $2,965,573 Remainder Interest Beneficiary Children or Life Insurance Trust Mrs. K 15 years (term certain) Year 1 Year 15 Pre-discounted Value $1,500,000 Minority Discount (500,000) Fair Market Value $1,000,000 $96,342 Annuity Payout Assume 9.5% Investment Return (6.5% income and 3% appreciation) Kugler Family Grantor Retained Annuity Trust $1,500,000 “S” Corporation Stock Gift Value $0

KUGLER SYSTEM THE $1,000,000 (73,173) 926,827 Gift $73,173 Taxable Gift Calculation Initial Value of 15-year $96,342 annuity interest retained by Grantor Less Discount for probability of Grantor (age 55) dying during 15-year period Present Value of Grantor’s retained annuity interest Present value of remainder interest Long Term Maximum Annuity Reversionary GRAT

KUGLER SYSTEM THE Gift of “S” Corporation Stock Long-Term Maximum Annuity Reversionary GRAT Grantor Retained Annuity Trust $1,500,000 “S” Corporation Stock $2,965,573 Remainder Interest Beneficiary Children or Life Insurance Trust Mrs. K 15 years or earlier death Year 1 Year 15 Pre-discounted Value $1,500,000 Minority Discount (500,000) Fair Market Value $1,000,000 $96,3420 Annuity Payout Assume 6.5% Investment Return (9.5% income and 3% appreciation) Kugler Family Gift Value $73,173

KUGLER SYSTEM THE Structuring the GRAT Payout to Correlate to the Income Generated by the Asset Transferred to the GRAT Taxable Gift Calculation $1,000,000 (778,474) Gift $221,526 Initial value of asset transferred to GRAT Present Value of 15-year $75,000 annuity interest retained by Grantor Present value of remainder interest

KUGLER SYSTEM THE Gift of “S” Corporation Stock to GRAT Term Certain Grantor Retained Annuity Trust $2,759,726 Remainder Interest Beneficiary Grantor’s Children Mrs. K 15 years or earlier death Year 1 Year 15 Pre-discounted Value $1,500,000 Minority Discount (500,000) Fair Market Value $1,000,000 $75,000 Annuity Payout Assumes Trust Growth Rate 8% (5% Income and 3% Appreciation) Kugler Family Grantor Retained Annuity Trust $1,500,000 “S” Corporation Stock Gift Value $221,526

KUGLER SYSTEM THE Structuring the Long-Term GRAT to Provide an Increasing Annuity Payout Transfer of “S” Corporation to GRAT Grantor Retained Annuity Trust $1,500,000 “S” Corporation stock $2,996,142 Remainder Interest Beneficiary--Grantor’s Children Year 1 Year 15 Mr. Kugler Pre-discounted Value $1,500,000 Minority Discount (500,000) Fair Market Value $1,000,000 Gift Value: 0 Assume 9.5% Investment Return (5% Income and 5% Appreciation) YearIncreasing Annuity Payout 1$75, , , ,004 Mr. K

KUGLER SYSTEM THE Structuring an Increasing Annuity Payout to Correlate to the Anticipated Income Generated from a Long-Term GRAT Funded with a Discounted Income Producing Asset Transfer of “S” Corporation to GRAT Grantor Retained Annuity Trust $1,500,000 “S” Corporation stock $2,709,541 Remainder Interest Beneficiary--Grantor’s Children Year 1 Year 15 Mr. Kugler Pre-discounted Value $1,500,000 Minority Discount (500,000) Fair Market Value $1,000,000 Gift Value: 0 Assume 9% Investment Return (5% Income and 4% Appreciation) YearIncreasing Annuity Payout 1$75, , , ,004 Mr. K

KUGLER SYSTEM THE Comparing a GRAT That Provides a Level Annuity Payout to An Increasing Annuity Payout Based on the Same Assumptions Asset Assumptions “S” Corporation Value$1,500,000 Minority Interest Discount (500,000) Value for Transfer Purposes$1,000,000 “S” Corporation Income6.5% of $1,500,000 Assumed Annual Appreciation3% GRAT Assumptions IRS Interest Rate5% 15 Year annuity payout to provide “zero” gift

KUGLER SYSTEM THE Scenario 1 Level Payout YearScenario 2 Increasing Payout $96,3421$75,000 96, ,571 96, ,287 96, ,004 $2,909,676Remainder Value$2,996,142