2. 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.

3. 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

4. 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 $10,000,000
0% Discount <$ >

5. 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>

6. #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

7. 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>

8. Net to Family With and Without Discounts

9. Net to Family - No Discounts With & Without LI

10. 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

11. 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

12. 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.