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Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning
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Gilbert Family Wealth Goal Achiever - InKnowVision Advanced Estate Planning

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  • 1. InKnowVision’s Monthly HNW Webinar Series Case Study Webinar ©2012. InKnowVision LLC. All rights reserved. www.inknowvision.com
  • 2. FAMILY WEALTH GOAL ACHIEVER™ - INITIAL PREPARED FOR: JONATHAN AND SUSAN GILBERT January 1, 2011 PRESENTED BY Scott Hamilton InKnowVisionCopyright InKnowVision, LLC 2011
  • 3. YOUR GOALS AND OBJECTIVES JONATHAN AND SUSAN GILBERTMaintain our customary lifestyle. This should take about $2,000,000 annually after taxes and gifts.Provide for the financial security of the surviving spouse.Maintain adequate liquidity for emergencies and investment opportunities. We prefer to keep at least $2,000,000 incash and readily marketable securities.Maximize the inheritance that we leave to our daughters and our grandchildren.Provide for lifetime annual charitable gifts for Cancer Research (or other charitable causes) and a significantcharitable gift at death.Reduce income taxes.Eliminate or reduce estate taxes.Provide asset protection for our estate as well as our children. Page 2
  • 4. JONATHAN AND SUSAN GILBERTLIFETIME SPENDING AND LIQUIDITY Page 3
  • 5. YOUR LIQUID ASSETS - CURRENT PLAN VS. PROPOSED PLAN JONATHAN AND SUSAN GILBERT $200,000,000 $180,000,000 $160,000,000 $140,000,000 $120,000,000 $100,000,000 - $80,000,000 $60,000,000 $40,000,000 $20,000,000 $20 000 000 $- Liquid Assets Current Liquid Assets Proposed Total Living ExpensesMost of our clients want to know that they have sufficient income and liquid assets to pay for their living expenses for the rest of their lives. This chart assumes fullimplementation of the proposed plan and shows your liquid assets over your life expectancy compared with liquid assets if you left your current planning in place.Liquid assets include cash, stocks, bonds, annuities and qualified retirement accounts but do not include any other assets you might own such as promissory notes,businesses or real estate. Page 4
  • 6. JONATHAN AND SUSAN GILBERTINCOME TAX SAVINGS Page 5
  • 7. COMPARISON OF INCOME TAX RESULTS - PLAN YEAR 2011 JONATHAN AND SUSAN GILBERT Existing Plan Proposed Plan Income Tax Saved 2011 Estimated Income Tax $ 4,500,000 $ 3,400,000 $ 1,100,000 2012 Estimated Income Tax $ 4,700,000 $ 4,300,000 $ 400,0002 Year Estimated Income Tax Savings $ 1,500,000 Page 6
  • 8. INCOME TAXES PAID - CURRENT VS. PROPOSED JONATHAN AND SUSAN GILBERT $12,000,000 $10,000,000 $8,000,000 - $6,000,000 $4,000,000 $2,000,000 $- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Current Plan Proposed PlanThis chart compares the amount of income taxes paid in the current plan as against the proposed plan. Page 7
  • 9. CREATE A CHARITABLE LIFE ESTATE JONATHAN AND SUSAN GILBERT Jonathan & Susan create a charitable life estate with a DAF or Cancer Research Charity.Assumptions:Value of Property $ 3,500,000Life of Property 40 What am I keeping?Salvage Value $ 350,000 -The right to live in the houseLand Value $ 700,000 -The right to make improvements7520 Rate 3.20% -The right to rent the propertyAge of Donor 76Age of Donor Spouse 74Remainder Interest* $ 1,977,402Potential Tax Savings $ 680,507*(Value of Income Tax Deduction) Page 8
  • 10. DISTRIBUTION OF HOME UPON SECOND DEATH JONATHAN AND SUSAN GILBERTUpon the second death, the home will be distributed to the DAF or Cancer Research Charity. Page 9
  • 11. BEGIN MAKING ANNUAL CHARITABLE GIFTS JONATHAN AND SUSAN GILBERT Jonathan & Susan make charitable gifts.Assumptions:Annual Gifts $ 600,000Approx Annual Tax Savings 230,250Amount of gift is for illustration only.Gift is built into liquidity results. Page 10
  • 12. JONATHAN AND SUSAN GILBERTINCREASE INHERITANCEAND REDUCE ESTATE TAX Page 11
  • 13. COMPARISON OF PLAN RESULTS - PLAN YEAR 2011 JONATHAN AND SUSAN GILBERT Existing Plan Proposed Plan Advantage Estate Value $ 141,785,579 $ 136,933,458 Heirs Receive Immediately $ 113,798,140 $ 139,786,697 $ 25,988,557 Heirs Receive Benefits from TCLAT $ - $ 74,608,048 $ 74,608,048 Total Benefits to Family $ 113,798,140 $ 214,394,745 $ 100,596,605 Family Charity $ - $ 127,030,966 $ 127,030,966 Estate and Income Tax $ 45,923,753 $ - $ 45,923,753This chart assumes that you both die this year and compares the results of the current plan with the proposed plan. Page 12
  • 14. COMPARISON OF PLAN RESULTS - PLAN YEAR 2011 JONATHAN AND SUSAN GILBERT CURRENT PLAN PROPOSED PLAN Heirs Estate Tax Charity Heirs Estate Tax Charity Heirs $113,798,140 Heirs $214,394,745 Estate Tax $45,923,753 Estate Tax $0 Charity $0 Charity $127,030,966In the current plan, a portion of the benefit to heirs is qualified plan money. Withdrawals from these plans will be treated as ordinary income. Page 13
  • 15. COMPARISON OF PLAN RESULTS - PLAN YEAR 2026 JONATHAN AND SUSAN GILBERT Existing Plan Proposed Plan Advantage Estate Value $ 397,435,879 $ 261,714,223 Heirs Receive Immediately $ 199,577,351 $ 192,956,191 $ (6,621,160) Heirs Receive Benefits from TCLAT $ - $ 152,896,387 $ 152,896,387 Total Benefits to Family $ 199,577,351 $ 345,852,577 $ 146,275,226 Family Charity $ - $ 267,377,348 $ 267,377,348 Estate and Income Tax $ 215,276,801 $ - $ 215,276,801 Present Value of total to Heirs $128,101,107 $221,989,609 Discount rate for PV calculation 3.00%This chart assumes that you both die at life expectancy and compares the results of the current plan with the proposed plan.The present value of the total passing to heirs is our attempt to put inheritance into todays dollars to provide perspective.We are using an inflation rate of 3% to calculate the present value numbers. Page 14
  • 16. COMPARISON OF PLAN RESULTS - PLAN YEAR 2026 JONATHAN AND SUSAN GILBERT CURRENT PLAN PROPOSED PLAN Heirs Estate Tax Charity Heirs Estate Tax Charity Heirs $199,577,351 Heirs $192,956,191 Estate Tax $215,276,801 Estate Tax $0 Charity $0 Charity $267,377,348In the current plan, a portion of the benefit to heirs is qualified plan money. Withdrawals from these plans will be treated as ordinary income. Page 15
  • 17. ASSETS PASSING TO YOUR FAMILY - CURRENT VS. PROPOSED JONATHAN AND SUSAN GILBERT $360,000,000 $320,000,000 $280,000,000 $240,000,000 - $200,000,000 $160,000,000 $120,000,000 $80,000,000 Current Plan Proposed Plan Proposed Plan w/out Life Ins Proposed Plan w/out TCLATThis chart compares the amount of your assets that will pass to heirs after estate taxes and costs of implementation in the current plan as against the proposedplan. Page 16
  • 18. ASSETS PASSING TO YOUR FAMILY - CURRENT VS. PROPOSED JONATHAN AND SUSAN GILBERT $360,000,000 $320,000,000 $280,000,000 $240,000,000 - $200,000,000 $160,000,000 $120,000,000 $80,000,000 Proposed Plan - Heirs Receive at Death Proposed Plan - Heirs Receive 16 years after death Current Plan Proposed Plan Without TCLATThis chart compares the amount of money passing to your heirs at death in the various plans against a background of assets passing to heirs immediately and assetspassing to heirs at the end of the TCLAT. Page 17
  • 19. BENEFITS - PLAN YEAR - VALUE OF LIFE INSURANCE JONATHAN AND SUSAN GILBERT With Life Insurance Without Life Insurance Advantage Death Occurs Today - Heirs Receive $ 218,757,960 $ 98,757,960 $ 120,000,000 Death Occurs in 2026 - Heirs Receive $ 345,852,577 $ 327,845,601 $ 18,006,976The benefits are based on certain assumptions. This is for illustration purposes only. Actual insurance numbers can only be determined by applying for insurance. Page 18
  • 20. JONATHAN AND SUSAN GILBERT INCREASE INCHARITABLE GIVING Page 19
  • 21. COMPARISON OF CHARITY RESULTS - PLAN YEAR 2011 JONATHAN AND SUSAN GILBERT Existing Plan Proposed Plan Increase in CharityCharity Receives from TCLAT $ - $ 122,800,000 $ 122,800,000 Family Charity $ - $ 127,000,000 $ 127,000,000 Page 20
  • 22. COMPARISON OF CHARITY RESULTS - PLAN YEAR 2026 JONATHAN AND SUSAN GILBERT Existing Plan Proposed Plan Increase in CharityCharity Receives from TCLAT $ - $ 251,700,000 $ 251,700,000 Family Charity $ - $ 267,400,000 $ 267,400,000 Page 21
  • 23. GIFTING TO CHARITY - EXISTING PLAN VS. PROPOSED PLAN JONATHAN AND SUSAN GILBERT$280,000,000$240,000,000$200,000,000$160,000,000 -$120,000,000 $80,000,000 $40,000,000 $- Current Plan Charity Proposed Plan Charity This chart compares the amount of your gifts to charity in the current plan as against the proposed plan. Page 22
  • 24. PERIODIC TABLE OF ESTATE PLANNING ELEMENTS - CONSIDERED JONATHAN AND SUSAN GILBERTIn our planning process, we start with the universe of available planning tools. While this universe is constantly changing, the following chart outlinesmany of the available tools. We examine each of these strategies and discard those that are not suitable for meeting your goals and objectives. Charitable Family Limited Charitable Lead Remainder Uni- 412(i) Private Annuity GDOT SCIN Partnership Annuity Trust Trust Qualified Personal Sale for Installment Series Limited GDOT Owned Life Family LLC TCLAT Flip CRT Residence Trust Note Liability Company Insurance Preferred Limited Long Term Care Sell 60% Monster Premium Finance 529 Plans Gifting ILIT partnership Insurance Biz Stock to GDOT Charitable Life Walton GRAT Private Foundations NIMCRUT Annuity Withdrawal Asset Protection SPIA/Life Arbitrage Estate New Annual Revocable Living GDOT Purchases SPIA/Life in a Lifetime Gifts to Trusts, DPAs and Crummey Powers Dynasty Trust Life Insurance GDOT CLAT Charity of $600,000 POAs Policy From LLC 1 Supporting Short-Term Loan to IRA Maximizer Gift Annuity Remainder Sales Life Estates LLC/CRTs Organizations GDOT Charitable Defined Benefit Qualified Plan Bargain Sales Succession Planning Risk Management Remainder Annuity ESOP Planning Plans Limited Partnership Trust Page 23
  • 25. PERIODIC TABLE OF ESTATE PLANNING ELEMENTS - RECOMMENDED JONATHAN AND SUSAN GILBERTThe highlighted tools are those we have determined are most suited to achieving your goals and objectives. Charitable Family Limited Charitable Lead Remainder Uni- 412(i) Private Annuity GDOT SCIN Partnership Annuity Trust Trust Qualified Personal Sale for Installment Series Limited GDOT Owned Life Family LLC TCLAT Flip CRT Residence Trust Note Liability Company Insurance Preferred Limited Long Term Care Sell 60% Monster Premium Finance 529 Plans Gifting ILIT partnership Insurance Biz Stock to GDOT Charitable Life Walton GRAT Private Foundations NIMCRUT Annuity Withdrawal Asset Protection SPIA/Life Arbitrage Estate New Annual Revocable Living GDOT Purchases SPIA/Life in a Lifetime Gifts to Trusts, DPAs and Crummey Powers Dynasty Trust Life Insurance GDOT CLAT Charity of $600,000 POAs Policy From LLC 1 Supporting Short-Term Loan to IRA Maximizer Gift Annuity Remainder Sales Life Estates LLC/CRTs Organizations GDOT Charitable Defined Benefit Qualified Plan Bargain Sales Succession Planning Risk Management Remainder Annuity ESOP Planning Plans Limited Partnership TrustGreen equals a new Blue equals a social Yellow equals an planning tool for capital or charitable existing planning family tool tool Page 24
  • 26. ESTATE PLAN OVERVIEW AND ESTATE DISTRIBUTION - 2008 JONATHAN AND SUSAN GILBERT Gifts to ILIT NET WORTH 129,801,661 EXISTING ILIT LIFE ESTATE Short term loan to GDOT 1,055,324 3,500,000 INSURANCE Sell Monster Biz Shares to GDOT 15,000,000 GDOT Installment note Owns Monster Biz GDOT Purchases Life Insurance from LLC 1 Stock INSURANCE GDOT Purchases New Life Insurance 120,000,000First Death FAMILY TRUST / SUSAN MARITAL TRUST / SUSAN SUSAN ADMIN irst 4,235,543 119 736 945 119,736,945 745,348 745 348 651,848Second Death TCLAT ADMIN Heirs From HEIRS TCLAT 115,904,584 1,274,143 218,757,960 FAMILY CHARITY 120,004,584 Page25
  • 27. INTRODUCTION TO THE PLAN STRATEGIES ROADMAP JONATHAN AND SUSAN GILBERTThe following section of the plan contains a step by step roadmap for each of the strategies that we are recommending.You will notice that the strategies are often interdependent; that is, in order for one strategy to be successful, you mustcomplete another strategy as well. It is the integration of each of these strategies that allows you to most efficientlyaccomplish your goals.Also keep in mind that there is often more than one way to get from point A to point B. This is true in wealth transferplanning. If a particular strategy or combination of strategies is not acceptable to you, we may be able to reach thedesired result in a less efficient but perhaps more acceptable way.The following pages are a conceptual road map only, there are numerous details contained in each strategy that are notdetailed in the overall plan that follows. Page 26
  • 28. HAVE THE MONSTER BIZ SHARES APPRAISED JONATHAN AND SUSAN GILBERTHire an appraiser to value 6.12% of the Monster Biz shares. The appraiser will value the shares taking all of the following into account: ▪ Liquidity of the shares ▪ Transferability of the shares ▪ Degree of control that accompanies ownership of the shares ▪ The assets owned by the corporation AppraisalThe assumed value of the Monster Biz stock is for illustration purposes only.Note: Business appraisal is not an exact science. The IRS does not like valuation adjustments.A well regarded appraiser should be retained to value the interests being sold. Page 27
  • 29. CREATE GRANTOR DEEMED OWNER TRUST JONATHAN AND SUSAN GILBERT Jonathan creates an individual grantor deemed owner trust (GDOT). Page 28
  • 30. SELL MONSTER BIZ SHARES TO THE GDOT JONATHAN AND SUSAN GILBERT Jonathan sells 60% of his Monster Biz stock to the GDOT for an installment note. Sells his Monster Biz stock worth $42,165,000 An installment note worth $42,165,000 that provides annual payments of $1,880,559The sale price is based on the assumed value of the assetssold.*Note payments are interest only at 4.46%. Page 29
  • 31. LOAN TO GRANTOR DEEMED OWNER TRUST JONATHAN AND SUSAN GILBERT Jonathan makes a short term loan to the grantor deemed owner trust (GDOT). Page 30
  • 32. BENEFICIARIES GUARANTEE GDOT OBLIGATION JONATHAN AND SUSAN GILBERT The heirs guarantee the obligation of the GDOT. Installment note Beneficiaries of th GDOT ( others) B fi i i f the (or th ) guarantee a portion of the GDOT obligation. Page 31
  • 33. PURCHASE LIFE INSURANCE IN THE GDOT JONATHAN AND SUSAN GILBERT The GDOT Trustees purchase second-to-die life insurance with the assets of the GDOT.Premium Payment DetailsPremium in the amount of $13,440,000 is paid in the first year with assets of theGDOT. No premium payments are made for 10 years, then beginning in year 11,premiums in the amount of $9,363,183 are paid annually thereafter.The premium is based on certain assumptions. This is for illustration purposesonly. Actual insurance numbers can only be determined by applying forinsurance. Page 32
  • 34. WHY USE A ONE PAY WITH CATCH UP STRUCTURE FOR PREMIUMSReasons to use a one pay with catch up:1. Allows you to wait and see what will happen with the estate tax.2. You may decide to keep all of the death benefit or you might keep the policy but reduce the death benefit. Clients in theirlate 70s and 80s can consider selling the policy if they decide they do not want to keep it.3. Better economics. Allows you to keep the “unpaid” premium dollars and invest as you normally would. You will usually bebetter off than with level premiums.4. Relatively small commitment compared to death benefit. Usually less than the equivalent of two normal premiums.5. Works nicely with a TCLAT. Allows you to zero out the tax and give money to your kids. Keep in mind that your kids couldbe in their 70s or 80s before they inherit any money from the TCLAT.6. Policy is guaranteed (if required first year and catch up premiums are paid).7. People often lose guarantees because they pay premiums late. Because there are no premiums to pay until the catch-uppremiums begin, there is no need to worry about losing guarantees during this time period.8. Less administration and headache. Because you pay only one premium now, you only need to send Crummey notices thisyear. Then none until premiums start up again. Page 33
  • 35. GDOT PURCHASES LIFE INSURANCE FROM LLC 1 JONATHAN AND SUSAN GILBERT The GDOT Trustees purchase insurance policies from LLC 1 GDOT purchases insurance policies from LLC 1 for a note issued by the GDOT to LLC 1.The GDOT will issue a mid term note to LLC 1 collateralized by the policy.This reduces the value of LLC 1 over time and shifts assets to your daughters. Page 34
  • 36. TESTAM TESTAMENTARY CHARITABLE LEAD ANNUITY TRUST (Part I) JONATHAN AND SUSAN GILBERT Include language in your trust or Will that creates a testamentary charitable lead trust (TCLAT) at the second death. TCLAT AssumptionsAsset growth rate 8.00%TCLAT payout rate 8.08%Present value discount rate 3.00%Assumed date of death 2011 Page 35
  • 37. TESTAMENTARY CHARITABLE LEAD ANNUITY TRUST (Part II) JONATHAN AND SUSAN GILBERT At the end of the TCLAT term, your heirs will receive all of the remaining trust assets. Page 36
  • 38. COST BENEFIT ANALYSIS JONATHAN AND SUSAN GILBERTAll strategies have an element of risk; a chance that the program adopted does not work as planned. Estate planning strategies carry an element of risk aswell. Many advisors warn their clients of risk but do not make an effort to quantify those risks. We have taken the position in our planning that if a risk isquantifiable, it should be identified as such and the cost of the risk should be disclosed to our client. When the risk is not quantifiable, this should also bedisclosed.Any risk analysis begins with two questions: What is the reward to be gained by taking the risk? What is the cost of the potential loss if the plan fails totally? If you are satisfied that the reward is worth the risk and that the risk of loss is acceptable, it would then make sense to pursue the strategy. If the risk is such that you could not comfortably accept the loss, then the risk should not be taken.Is the reward worth the risk?The reward of the proposed plan results in an advantage to your heirs today of $100,596,605 over your existing plan.The reward of the proposed plan results in an advantage to your heirs at life expectancy of $146,275,226 over your existing plan.What if the Plan fails totally?There are 4 basic areas of potential risk involved in this comprehensive plan. We assume total failure of all planning techniques in order to provide a worstcase analysis. Transaction costs Attorneys Fees 200,000 Valuation Fees 15,000 Total $ 215,000 Annual Maintenance Fee $ 15,000 Taxes This represents the taxes that will have to be paid if the plan fails entirely. Note that this is the same amount that would be paid without the planning. Total additional tax over current plan = $0 Page 37
  • 39. COST BENEFIT ANALYSIS (Continued)Interest (cost of money) Interest is charged on late tax payments by the IRS at the rate of the applicable federal rate plus 3%. You must invest at a rate less than this rate to lose money. Assuming that assets earn in excess of that rate, there should be no risk of loss due to cost of money. Nonetheless, we assume that assets actually earn 2% less than the IRS interest rates, and the risk of loss would be $835,828.Penalties Assuming the plan is implemented with the help of knowledgeable advisors, the only potential penalty is for substantial undervaluation. The penalty comes into play in the case of a challenge to asset valuation. If the value reported for a transaction is less than 65% of the value as finally determined for tax purposes (by the IRS or the courts) then there is a 25% substantial undervaluation penalty. The valuation adjustment assumed in this plan is 0.00%. Therefore, an adjustment should not result in a substantial undervaluation penalty. Risk Analysis $160,000,000 $140,000,000 $120 000 000 $120,000,000 $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $- Benefit to Heirs 2011 Benefit to Heirs 2026 Potential Loss (Total Failure) Page 38
  • 40. DETAILED FINANCIAL ANALYSIS JONATHAN AND SUSAN GILBERT INTRODUCTIONThe following section of the plan contains all of the financial analysis used to show you where you standwith your current plan and what is possible with the proposed plan.All of the numbers are based on information provided by you or gleaned from statements and tax returns. Ifnumbers do not look correct, please let us know so that we can make appropriate changes.Assumed growth and yield numbers are all listed on the Net Worth pages contained in these sections. Page 39
  • 41. DETAILED FINANCIAL ANALYSIS JONATHAN AND SUSAN GILBERT CURRENT PLAN FINANCIALSIn the Current Plan Section you will find a Net Worth Statement and a detailed cash flow and asset valueprojection analysis. Page 40
  • 42. CURRENT NET WORTH STATEMENT JONATHAN AND SUSAN GILBERT JONATHAN SUSAN JOINT TOTAL YIELD GROWTHCASH AND EQUIVALENTS Private Bank 536,343 - - 536,343 2.0% 0.0% Private Bank CD 15,000,000 2,400,000 - 17,400,000 5.5% 0.0% Private Bank MMF 5,304,042 583,353 - 5,887,395 3.0% 0.0% National City - 23,997 - 23,997 2.0% 0.0% Bank of America MMF 100,686 - - 100,686 2.0% 0.0% Bank of America 31,425 - - 31,425 2.0% 0.0% Bank of America 320,235 - - 320,235 2.0% 0.0% LLC 1 - 3,756 - 3,756 2.0% 0.0% LLC 2 - 3,054 - 3,054 2.0% 0.0% LLC 3 - 3,507 - 3,507 2.0% 0.0% LLC 4 - 5,556 - 5,556 2.0% 0.0% Cash on Hand - - 25,500 25,500 2.0% 0.0% Total of Cash and Equivalents 21,292,731 3,023,223 25,500 24,341,454 4.7% 0.0% Page 41
  • 43. CURRENT NET WORTH STATEMENT (Page 2) JONATHAN AND SUSAN GILBERT JONATHAN SUSAN JOINT TOTAL YIELD GROWTHOTHER INVESTMENTS Note 1 1,059,000 - - 1,059,000 5.0% 5.0% Note 2 893,352 - - 893,352 0.0% 10.0% Total of Other Investments 1,952,352 - - 1,952,352 2.7% 7.3%CLOSELY HELD BUSINESS Monster Biz (10.2%) 70,275,000 - - 70,275,000 13.0% 3.0% Total Closely Held Business 70,275,000 - - 70,275,000 13.0% 3.0%INVESTMENT REAL ESTATE LLC 1 3,900,000 - - 3,900,000 2.4% 4.0% LLC 2 4,647,000 - - 4,647,000 8.4% 4.0% LLC 3 6,000,000 - - 6,000,000 0.0% 4.0% LLC 4 19,800,000 - - 19,800,000 4.6% 4.0% LLC 5 13,926,000 - - 13,926,000 4.3% 4.0% LLC 6 11,010,000 - - 11,010,000 3.3% 4.0% LLC 7 13,500,000 - - 13,500,000 1.6% 4.0% LLC 8 2,400,000 - - 2,400,000 0.0% 4.0% LLC 9 3,000,000 - - 3,000,000 4.0% 4.0% Total of Real Estate Holdings 78,183,000 - - 78,183,000 3.4% 4.0% Page 42
  • 44. CURRENT NET WORTH STATEMENT (Page 3) JONATHAN AND SUSAN GILBERT JONATHAN SUSAN JOINT TOTAL YIELD GROWTHRESIDENTIAL REAL ESTATE 12345 Main St - 3,500,000 - 3,500,000 0.0% 3.0% Florida Condo 3,500,000 - - 3,500,000 0.0% 3.0% Total of Personal Residences 3,500,000 3,500,000 - 7,000,000 0.0% 3.0%PERSONAL PROPERTY Personal Property - - 1,500,000 1,500,000 0.0% 0.0% Total of Personal Property - - 1,500,000 1,500,000 0.0% 0.0%TOTAL ASSETS 175,203,083 6,523,223 1,525,500 183,251,806LIABILITIES 12345 Main St - 686,001 - 686,001 LLC 1 3,113,664 - - 3,113,664 LLC 2 15,641,955 - - 15,641,955 LLC 3 10,427,970 - - 10,427,970 LLC 4 8,689,974 - - 8,689,974 LLC 5 10,315,581 - - 10,315,581 LLC 6 - - 75,000 75,000 LLC 7 2,250,000 2,250,000 - 4,500,000 Total Liabilities 50,439,144 2,936,001 75,000 53,450,145TOTAL LIABILITIES 50,439,144 2,936,001 75,000 53,450,145NET WORTH 124,763,939 3,587,222 1,450,500 129,801,661 Page 43
  • 45. SCHEDULE OF LIFE INSURANCE BENEFITS - CURRENT PLAN JONATHAN AND SUSAN GILBERT COMPANY INSURED POLICY # BENEFICIARY PREMIUM CASH VALUE DEATH BENEFITPolicies owned by LLC 1John Hancock Jonathan & Susan 1234567 LLC 1 240,330 482,209 10,000,000Metlife Jonathan & Susan 2345678 LLC 1 108,968 197,729 5,000,000 Totals 349,298 679,938 15,000,000Policies owned by ILITAXA Jonathan 3456789 ILIT DTD 03/12/1996 20,251 103,349 1,055,324 Totals 20,251 103,349 1,055,324 Page 44
  • 46. FINANCIAL ANALYSIS - EXISTING PLAN ASSET VALUE PROJECTIONS - EXISTING PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Asset ValuesCash and cash equivalents 24,341,454 30,753,104 37,571,662 44,118,551 51,058,392 83,130,976 134,542,064 172,557,606Other investments 1,059,000 1,111,801 1,167,391 1,225,761 1,287,049 1,564,416 1,996,636 2,311,355Closely held business 70,275,000 72,377,388 74,548,710 76,785,171 79,088,727 89,015,058 103,192,850 112,761,613Note 2 1 893,352 982,431 1,080,674 1,188,741 1,307,615 1,914,479 3,083,288 4,103,857Investment real estate 78,183,000 81,301,583 84,553,647 87,935,793 91,453,224 106,987,337 130,166,454 146,419,559Personal residences 7,000,000 7,209,416 7,425,699 7,648,470 7,877,924 8,866,672 10,278,904 11,232,035Personal property 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000Total assets in estate 183,251,806 195,235,724 207,847,783 220,402,486 233,572,930 292,978,940 384,760,196 450,886,024Less estimated liabilities (53,450,145) (53,450,145) (53,450,145) (53,450,145) (53,450,145) (53,450,145) (53,450,145) (53,450,145)Combined net worth $ 129,801,661 $ 141,785,579 $ 154,397,638 $ 166,952,341 $ 180,122,785 $ 239,528,795 $ 331,310,051 $ 397,435,8791 Were assuming the note will not be paid off, and it will continue accruing at 10%. Our assumption is that the 10% interest is taxable.In the event that there is a cash flow surplus, the surplus is added to the marketable securities row by default.If there is a cash flow shortage (because of spending or gifting capital) then the shortage is treated as a reduction in marketable securities. Page 45
  • 47. TAXABLE INCOME PROJECTIONS - EXISTING PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Sources of taxable incomeCash and cash equivalents 1,154,703 1,458,857 1,782,314 2,092,883 3,530,573 5,840,892 7,554,666Other investments 52,950 55,590 58,370 61,288 74,496 95,078 110,065Closely held business 9,135,750 9,409,060 9,691,332 9,982,072 11,234,910 13,024,340 14,232,048Investment real estate 2,692,896 2,800,311 2,912,323 3,028,816 3,543,287 4,310,950 4,849,232Social security income 17,856 18,213 18,577 18,949 20,511 22,646 24,032Pension income 48,000 48,000 48,000 48,000 48,000 48,000 48,000Gross income $ 13,102,155 $ 13,790,032 $ 14,510,917 $ 15,232,009 $ 18,451,777 $ 23,341,905 $ 26,818,043 Page 46
  • 48. INCOME TAX PROJECTIONS - EXISTING PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Income tax EstimationAdjusted gross income:Earned and other income 13,102,155 13,790,032 14,510,917 15,232,009 18,451,777 23,341,905 26,818,043 Adjusted gross income 13,102,155 13,790,032 14,510,917 15,232,009 18,451,777 23,341,905 26,818,043DeductionsReal estate tax 50,956 50,956 51,975 53,015 54,075 58,532 64,625 68,580Interest 25,000 25,000 25,500 26,010 26,530 28,717 31,706 33,647Charitable gifts 57,250 57,250 58,395 59,563 60,754 65,762 72,607 77,051Charitable Deduction available 57,250 58,395 59,563 60,754 65,762 72,607 77,051Charitable Deduction allowed 57,250 58,395 59,563 60,754 65,762 72,607 77,051Total deductions 133,206 135,870 138,588 141,359 153,012 168,937 179,278Reductions - - (110,870) (113,087) (122,409) (135,150) (143,422)Deductions allowed 133,206 135,870 27,718 28,272 30,602 33,787 35,856Taxable income 12,968,949 13,654,162 14,483,199 15,203,737 18,421,174 23,308,118 26,782,188Federal and State income tax $ 4,509,004 $ 4,748,828 $ 5,699,414 $ 5,984,747 $ 7,258,852 $ 9,194,082 $ 10,569,813 Page 47
  • 49. CASH FLOW PROJECTIONS - EXISTING PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Sources of income for LifestyleDepreciation Add Back 52,000 52,000 52,000 52,000 52,000 52,000 -Consumable income (taxable) 13,102,155 13,790,032 14,510,917 15,232,009 18,451,777 23,341,905 26,818,043Total income available for lifestyle 13,154,155 13,842,032 14,562,917 15,284,009 18,503,777 23,393,905 26,818,043Uses of CashLiving expenses 2,000,000 2,040,000 2,080,800 2,122,416 2,297,371 2,536,484 2,691,737Income tax 4,509,004 4,748,828 5,699,414 5,984,747 7,258,852 9,194,082 10,569,813Cash gifts to ILIT 20,251 20,251 20,251 20,251 20,251 20,251 20,251Cash gifts to family 156,000 156,000 156,000 156,000 156,000 156,000 156,000Cash gifts to charity 57,250 58,395 59,563 60,754 65,762 72,607 77,051Total uses of cash 6,742,505 7,023,474 8,016,028 8,344,168 9,798,237 11,979,423 13,514,852Surplus $ 6,411,650 $ 6,818,558 $ 6,546,889 $ 6,939,841 $ 8,705,540 $ 11,414,482 $ 13,303,191In the event that there is a cash flow surplus, the surplus is added to the marketable securities row on the "Asset Value Projections" 3 pages earlier.If there is a cash flow shortage (spending or gifting capital) then the shortage is treated as a reduction in marketable securities rowon the "Asset Value Projections" 3 pages earlier. Page 48
  • 50. FIRST ESTATE TAX ESTIMATION AND DISTRIBUTION - EXISTING PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Tax calculation on Jonathans deathCombined net worth 129,801,661 141,785,579 154,397,638 166,952,341 180,122,785 239,528,795 331,310,051 397,435,879Jonathans estimated estate 125,489,189 137,074,959 149,268,000 161,405,592 174,138,467 231,570,798 320,302,754 384,231,648Total gross estate 125,489,189 137,074,959 149,268,000 161,405,592 174,138,467 231,570,798 320,302,754 384,231,648Settlement expenses (652,446) (710,375) (771,340) (832,028) (895,692) (1,182,854) (1,626,514) (1,946,158)Joint, personal and IRA to Susan (725,250) (792,209) (862,677) (932,825) (1,006,413) (1,338,336) (1,851,152) (2,220,622)Outright or in trust to Susan (119,875,950) (131,336,833) (143,398,440) (159,405,196) (172,000,819) (228,814,065) (316,589,546) (379,829,325)Taxable estate 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Plus Jonathans lifetime taxable gifts 764,457 764,457 764,457 764,457 764,457 764,457 764,457 764,457Tax base 5,000,000 5,000,000 5,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000Federal Estate Tax - - - - - - - -Distribution of Jonathans estateSettlement expenses 652,446 710,375 771,340 832,028 895,692 1,182,854 1,626,514 1,946,158To family trust 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Joint, personal and IRA to Susan 725,250 792,209 862,677 932,825 1,006,413 1,338,336 1,851,152 2,220,622Outright or in trust to Susan 119,875,950 131,336,833 143,398,440 159,405,196 172,000,819 228,814,065 316,589,546 379,829,325Total $ 125,489,189 $ 137,074,959 $ 149,268,000 $ 161,405,592 $ 174,138,467 $ 231,570,798 $ 320,302,754 $ 384,231,648AssumptionsWe assume that Jonathan dies first, followed immediately by Susan.Taxes under "Distribution of First Estate" include estate and income taxes. Page 49
  • 51. SECOND ESTATE TAX ESTIMATION AND DISTRIBUTION - EXISTING PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Tax Calculation on Susans deathSusans assets 4,312,472 4,710,620 5,129,638 5,546,749 5,984,318 7,957,997 11,007,296 13,204,231Plus assets from Jonathans estate 120,601,200 132,129,041 144,261,117 160,338,021 173,007,231 230,152,401 318,440,698 382,049,947Susans estimated estate 124,913,672 136,839,661 149,390,755 165,884,770 178,991,550 238,110,398 329,447,994 395,254,178Settlement expenses (1,274,137) (1,393,397) (1,518,908) (1,683,848) (1,814,915) (2,406,104) (3,319,480) (3,977,542)Susans taxable estate 123,639,535 135,446,265 147,871,847 164,200,923 177,176,634 235,704,294 326,128,514 391,276,636Plus Susans lifetime taxable gifts 764,457 764,457 764,457 764,457 764,457 764,457 764,457 764,457Tax base 124,403,992 136,210,722 148,636,304 164,965,380 177,941,091 236,468,751 326,892,971 392,041,093Federal Estate Tax 41,791,397 45,923,753 50,272,706 90,385,159 97,521,800 129,712,013 179,445,334 215,276,801Total Estate Tax Due 41,791,397 45,923,753 50,272,706 90,385,159 97,521,800 129,712,013 179,445,334 215,276,801Distribution of Susans estateSettlement expenses 1,274,137 1,393,397 1,518,908 1,683,848 1,814,915 2,406,104 3,319,480 3,977,542Taxes 41,791,397 45,923,753 50,272,706 90,385,159 97,521,800 129,712,013 179,445,334 215,276,801Residual estate to heirs 81,848,138 89,522,512 97,599,141 73,815,764 79,654,834 105,992,281 146,683,180 175,999,835Total $ 124,913,672 $ 136,839,661 $ 149,390,755 $ 165,884,770 $ 178,991,550 $ 238,110,398 $ 329,447,994 $ 395,254,178AssumptionsWe assume that Jonathan dies first, followed immediately by Susan.Taxes under "Distribution of Second Estate" include estate and income taxes. Page 50
  • 52. SUMMARY OF BENEFITS TO FAMILY - EXISTING PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Benefits to FamilyFamily trust 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Residual estate 81,848,138 89,522,512 97,599,141 73,815,764 79,654,834 105,992,281 146,683,180 175,999,835Grandchildrens Trust 378,010 396,857 416,700 437,535 459,412 558,418 712,699 825,038LLC 1 (Insurance Policies) 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000LLC 1 (Other)1 3,449,907 3,587,903 3,731,419 3,880,676 4,035,903 4,721,436 5,744,349 6,461,611Proceeds from ILIT 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324Total assets to heirs $ 105,966,922 $ 113,798,140 $ 122,038,127 $ 94,424,842 $ 100,441,016 $ 127,563,002 $ 169,431,095 $ 199,577,3511 LLC 1: 34567 Main St, Fairview Heights, IL $4,000,000 ($7.5 M value, debt of $3.5M) John Hancock 2nd to die policy 1234567 $15,000,000 (death benefit) Debt owed to Jonathan -$353,000 Private Bank Accounts $475,539 Page 51
  • 53. DETAILED FINANCIAL ANALYSIS JONATHAN AND SUSAN GILBERT PROPOSED PLAN FINANCIALSIn the Proposed Plan Section you will find a balance sheet which reflects the repositioning of assets as setout in the step by step roadmap in the proceeding section. You will also find detailed cash flow and assetprojection information on each of the proposed planning strategies. Page 52
  • 54. NET WORTH STATEMENT AFTER PLAN IMPLEMENTATION JONATHAN AND SUSAN GILBERT JONATHAN SUSAN JOINT TOTAL YIELD GROWTHCASH AND EQUIVALENTS Private Bank 536,343 - - 536,343 2.0% 0.0% Private Bank CD 15,000,000 2,400,000 - 17,400,000 5.5% 0.0% Private Bank MMF 5,304,042 583,353 - 5,887,395 3.0% 0.0% National City - 23,997 - 23,997 2.0% 0.0% Bank of America MMF 100,686 - - 100,686 2.0% 0.0% Bank of America 31,425 - - 31,425 2.0% 0.0% Bank of America 320,235 - - 320,235 2.0% 0.0% LLC 1 - 3,756 - 3,756 2.0% 0.0% LLC 2 - 3,054 - 3,054 2.0% 0.0% LLC 3 - 3,507 - 3,507 2.0% 0.0% LLC 4 - 5,556 - 5,556 2.0% 0.0% Cash on Hand - - 25,500 25,500 2.0% 0.0% Total o Cas a d Equivalents ota of Cash and qu va e ts 21,292,731 , 9 ,73 3,0 3, 3 3,023,223 25,500 5,500 24,341,454 ,3 , 5 4.7% .7% 0.0% Page 53
  • 55. REVISED NET WORTH STATEMENT (Page 2) JONATHAN AND SUSAN GILBERT JONATHAN SUSAN JOINT TOTAL YIELD GROWTHOTHER INVESTMENTS Note 1 1,059,000 - - 1,059,000 5.0% 5.0% Note 2 893,352 - - 893,352 0.0% 10.0% Total of Other Investments 1,952,352 - - 1,952,352 2.7% 7.3%CLOSELY HELD BUSINESS Monster Biz (10.2%) 28,110,000 - - 28,110,000 13.0% 3.0% Total Closely Held Business 28,110,000 - - 28,110,000 13.0% 3.0%INVESTMENT REAL ESTATE LLC 1 3,900,000 - - 3,900,000 2.4% 4.0% LLC 2 4,647,000 - - 4,647,000 8.4% 4.0% LLC 3 6,000,000 - - 6,000,000 0.0% 4.0% LLC 4 19,800,000 - - 19,800,000 4.6% 4.0% LLC 5 13,926,000 - - 13,926,000 4.3% 4.0% LLC 6 11,010,000 - - 11,010,000 3.3% 4.0% LLC 7 13,500,000 - - 13,500,000 1.6% 4.0% LLC 8 2,400,000 - - 2,400,000 0.0% 4.0% LLC 9 3,000,000 - - 3,000,000 4.0% 4.0% Total of Real Estate Holdings 78,183,000 - - 78,183,000 3.4% 4.0% Page 54
  • 56. REVISED NET WORTH STATEMENT (Page 3) JONATHAN AND SUSAN GILBERT JONATHAN SUSAN JOINT TOTAL YIELD GROWTHRESIDENTIAL REAL ESTATE 12345 Main St - 3,500,000 - 3,500,000 0.0% 3.0% Total of Personal Residences - 3,500,000 - 3,500,000 0.0% 3.0%PERSONAL PROPERTY Personal Property - - 1,500,000 1,500,000 0.0% 0.0% Total of Personal Property - - 1,500,000 1,500,000 0.0% 0.0%OTHER STRATEGY ASSETS GDOT Note 42,165,000 - - 42,165,000 4.46% Total of Other Strategy Assets 42,165,000 - - 42,165,000 4.46%TOTAL ASSETS 171,703,083 6,523,223 1,525,500 179,751,806LIABILITIES 12345 Main St - 686,001 - 686,001 LLC 1 3,113,664 - - 3,113,664 LLC 2 15,641,955 - - 15,641,955 LLC 3 10,427,970 - - 10,427,970 LLC 4 8,689,974 - - 8,689,974 LLC 5 10,315,581 - - 10,315,581 LLC 6 - - 75,000 75,000 LLC 7 2,250,000 2,250,000 - 4,500,000 Total Liabilities 50,439,144 2,936,001 75,000 53,450,145TOTAL LIABILITIES 50,439,144 2,936,001 75,000 53,450,145NET WORTH 121,263,939 3,587,222 1,450,500 126,301,661 Page 55
  • 57. FINANCIAL ANALYSIS - PROPOSED PLA ASSET VALUE PROJECTIONS - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Asset ValuesCash and cash equivalents 13,091,454 15,912,416 18,454,642 20,350,452 22,297,614 41,946,149 58,764,580 67,327,917Other investments 1,059,000 1,111,801 1,167,391 1,225,761 1,287,049 1,564,416 1,996,636 2,311,355Closely held business 28,110,000 28,950,955 29,819,484 30,714,069 31,635,491 35,606,023 41,277,140 45,104,645Note 2 1 893,352 982,431 1,080,674 1,188,741 1,307,615 1,914,479 3,083,288 4,103,857Loan to the GDOT 11,250,000 11,250,000 11,250,000 11,250,000 11,250,000 - - -Investment real estate 78,183,000 81,301,583 84,553,647 87,935,793 91,453,224 106,987,337 130,166,454 146,419,559Personal residences 3,500,000 3,604,708 3,712,849 3,824,235 3,938,962 4,433,336 5,139,452 5,616,018Residences in charitable life estate 3,500,000 3,604,708 3,712,849 3,824,235 3,938,962 4,433,336 5,139,452 5,616,018Personal property 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000Note from childrens GDOT 42,165,000 42,165,000 42,165,000 42,165,000 42,165,000 42,165,000 37,165,000 37,165,000Total assets in estate 183,251,806 190,383,603 197,416,536 203,978,285 210,773,916 240,550,077 284,232,002 315,164,368Less estimated liabilities (53,450,145) (53,450,145) (53,450,145) (53,450,145) (53,450,145) (53,450,145) (53,450,145) (53,450,145)Combined net worth $ 129,801,661 $ 136,933,458 $ 143,966,391 $ 150,528,140 $ 157,323,771 $ 187,099,932 $ 230,781,857 $ 261,714,2231 Were assuming the note will not be paid off, and it will continue accruing at 10%. Our assumption is that the 10% interest is taxable.In the event that there is a cash flow surplus, the surplus is added to the marketable securities row by default.If there is a cash flow shortage (because of spending or gifting capital) then the shortage is treated as a reduction in marketable securities. Page 56
  • 58. TAXABLE INCOME PROJECTIONS - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Sources of Taxable IncomeCash and cash equivalents 621,029 754,849 875,446 965,379 1,885,341 2,436,646 3,052,715Other investments 52,950 55,590 58,370 61,288 74,496 95,078 110,065Closely held business 3,654,300 3,763,624 3,876,533 3,992,829 4,493,964 5,209,736 5,692,819Investment real estate 2,692,896 2,800,311 2,912,323 3,028,816 3,543,287 4,310,950 4,849,232Other taxable earnings-GDOT 5,481,450 5,670,718 5,902,963 6,148,077 7,040,483 8,410,579 8,940,761Social security income 17,856 18,213 18,577 18,949 20,511 22,646 24,032Pension income 48,000 48,000 48,000 48,000 48,000 48,000 48,000Gross income $ 12,568,481 $ 13,111,305 $ 13,692,212 $ 14,263,338 $ 17,106,082 $ 20,533,634 $ 22,717,624 Page 57
  • 59. INCOME TAX PROJECTIONS - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Income Tax EstimationAdjusted gross income:Earned and other income 12,568,481 13,111,305 13,692,212 14,263,338 17,106,082 20,533,634 22,717,624Adjusted gross income 12,568,481 13,111,305 13,692,212 14,263,338 17,106,082 20,533,634 22,717,624DeductionsReal Estate Tax 50,956 51,975 53,015 54,075 58,532 64,625 68,580Interest 25,000 25,500 26,010 26,530 28,717 31,706 33,647Cash charitable gifts 657,250 658,395 659,563 660,754 665,762 672,607 677,051LTCapGains property charitable gifts 1,977,402 - - - - - -Charitable Deduction available 2,634,652 658,395 659,563 660,754 665,762 672,607 677,051Charitable Deduction allowed 2,634,652 658,395 659,563 660,754 665,762 672,607 677,051Total deductions 2,710,608 735,870 738,588 741,359 753,012 768,937 779,278Reductions - - (405,762) (422,896) (508,178) (611,005) (623,422)Deductions allowed 2,710,608 735,870 332,825 318,463 244,833 157,932 155,856Taxable income 9,857,873 12,375,435 13,359,387 13,944,875 16,861,248 20,375,702 22,561,769Federal and State income tax $ 3,420,127 $ 4,301,274 $ 5,254,384 $ 5,486,238 $ 6,641,121 $ 8,032,845 $ 8,898,527 Page 58
  • 60. CASH FLOW PROJECTIONS - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Sources of Income for LifestyleConsumable income (taxable) 7,087,031 7,440,587 7,789,249 8,115,261 10,065,599 12,123,055 13,776,863Payment from GDOT (Initial Loan) 360,000 360,000 360,000 360,000 - - -Depreciation Add Back 52,000 52,000 52,000 52,000 52,000 52,000 -Payment from GDOT 1,880,559 1,880,559 1,880,559 1,880,559 1,880,559 6,657,559 1,657,559Total income available for lifestyle 9,379,590 9,733,146 10,081,808 10,407,820 11,998,158 18,832,614 15,434,422Uses of CashLiving expenses 2,000,000 2,040,000 2,080,800 2,122,416 2,297,371 2,536,484 2,691,737Income tax 3,420,127 4,301,274 5,254,384 5,486,238 6,641,121 8,032,845 8,898,527Cash gifts to ILIT 20,251 20,251 20,251 20,251 20,251 20,251 20,251Cash gifts to family 156,000 156,000 156,000 156,000 156,000 156,000 156,000Planning and maintenance Fees 305,000 15,000 15,000 15,000 15,000 15,000 15,000Cash gifts to charity 57,250 58,395 59,563 60,754 65,762 72,607 77,051New Cash gifts to charity 600,000 600,000 600,000 600,000 600,000 600,000 600,000Total uses of cash 6,558,628 7,190,920 8,185,998 8,460,659 9,795,506 11,433,186 12,458,566Surplus $ 2,820,962 $ 2,542,226 $ 1,895,810 $ 1,947,161 $ 2,202,652 $ 7,399,428 $ 2,975,856In the event that there is a cash flow surplus, the surplus is added to the marketable securities row on the "Asset Value Projections" 3 pages earlier. Page 59
  • 61. FIRST ESTATE TAX ESTIMATION AND DISTRIBUTION - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Tax calculation on Jonathans deathCombined Net Worth 129,801,661 136,933,458 143,966,391 150,528,140 157,323,771 187,099,932 230,781,857 261,714,223Jonathans estimated estate 125,369,684 132,257,971 139,050,771 145,388,474 151,952,074 180,711,551 222,901,990 252,778,194Total gross estate 125,369,684 132,257,971 139,050,771 145,388,474 151,952,074 180,711,551 222,901,990 252,778,194Settlement expenses (651,848) (686,290) (720,254) (751,942) (784,760) (928,558) (1,139,510) (1,288,891)Joint, personal and IRA to Susan (745,348) (786,300) (826,684) (864,363) (903,385) (1,074,366) (1,325,197) (1,502,817)Outright or in trust to Susan (119,736,945) (126,549,838) (133,268,290) (143,536,625) (150,028,385) (178,473,084) (220,201,740) (249,750,943)Taxable estate 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Plus Jonathans lifetime taxable gifts 764,457 764,457 764,457 764,457 764,457 764,457 764,457 764,457Tax base 5,000,000 5,000,000 5,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000Tentative estate tax - - - - - - - -Distribution of First EstateSettlement expenses 651,848 686,290 720,254 751,942 784,760 928,558 1,139,510 1,288,891To family trust 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Joint, personal and IRA to Susan 745,348 786,300 826,684 864,363 903,385 1,074,366 1,325,197 1,502,817Outright or in trust to Susan 119,736,945 126,549,838 133,268,290 143,536,625 150,028,385 178,473,084 220,201,740 249,750,943Total $ 125,369,684 $ 132,257,971 $ 139,050,771 $ 145,388,474 $ 151,952,074 $ 180,711,551 $ 222,901,990 $ 252,778,194AssumptionsWe assume that Jonathan dies first, followed immediately by Susan.Taxes under "Distribution of First Estate" include estate and income taxes, if any. Page 60
  • 62. SECOND ESTATE TAX ESTIMATION AND DISTRIBUTION - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Tax Calculation on Susans deathSusans assets 4,431,977 4,675,486 4,915,620 5,139,666 5,371,698 6,388,382 7,879,867 8,936,029Plus assets from Jonathans estate 120,482,293 127,336,138 134,094,974 144,400,988 150,931,770 179,547,450 221,526,937 251,253,760Susans estimated estate 124,914,270 132,011,625 139,010,595 149,540,655 156,303,468 185,935,831 229,406,804 260,189,789Settlement expenses (1,274,143) (1,345,116) (1,415,106) (1,520,407) (1,588,035) (1,884,358) (2,319,068) (2,626,898)Charitable life estate transfer of home (3,500,000) (3,604,708) (3,712,849) (3,824,235) (3,938,962) (4,433,336) (5,139,452) (5,616,018)Charitable deduction from TCLAT (115,904,584) (122,826,257) (129,647,096) (143,960,470) (150,540,929) (179,382,594) (221,712,741) (251,711,330)Taxable estate 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Plus Susans lifetime taxable gifts 764,457 764,457 764,457 764,457 764,457 764,457 764,457 764,457Tax base 5,000,000 5,000,000 5,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000Federal Estate Tax - - 0 - - - 0 -Distribution of Second EstateSettlement expenses 1,274,143 1,345,116 1,415,106 1,520,407 1,588,035 1,884,358 2,319,068 2,626,898Taxes - - 0 - - - 0 -Residual estate to heirs 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Charitable Life Estate Gift 3,500,000 3,604,708 3,712,849 3,824,235 3,938,962 4,433,336 5,139,452 5,616,018Contribution to TCLAT 115,904,584 122,826,257 129,647,096 143,960,470 150,540,929 179,382,594 221,712,741 251,711,330Total $ 124,914,270 $ 132,011,625 $ 139,010,595 $ 149,540,655 $ 156,303,468 $ 185,935,831 $ 229,406,804 $ 260,189,789AssumptionsWe assume that Jonathan dies first, followed immediately by Susan.Taxes under "Distribution of Second Estate" include estate and income taxes, if any. Page 61
  • 63. SUMMARY OF BENEFITS TO FAMILY - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Benefits to FamilyResidual estate 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Family trust 4,235,543 4,235,543 4,235,543 235,543 235,543 235,543 235,543 235,543Value of GDOT (1,560,041) (10,334,436) (5,939,096) (1,116,873) 4,165,695 29,773,231 45,730,433 46,560,806Life insurance proceeds GDOT 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000Grandchildrens Trust 378,010 396,857 416,700 437,535 459,412 558,418 712,699 825,038LLC 1 (Insurance Policies) 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000LLC (Other and loan from GDOT) 5,009,948 5,197,865 5,392,900 5,595,324 5,805,420 6,728,556 8,093,830 9,043,937Proceeds from ILIT 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324NPV of TCLAT benefits to children 70,403,633 74,608,048 78,751,213 87,445,550 91,442,701 108,961,922 134,674,418 152,896,387Total assets to heirs $ 218,757,960 $ 214,394,745 $ 223,148,127 $ 228,887,947 $ 238,399,639 $ 282,548,538 $ 325,737,790 $ 345,852,577 Page 62
  • 64. CORPORATE RECAPITALIZATION - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Balance sheetRe-capitalized closely held business 42,165,000 43,426,433 44,729,226 46,071,103 47,453,236 53,409,035 61,915,710 67,656,968Total Value $ 42,165,000 $ 43,426,433 $ 44,729,226 $ 46,071,103 $ 47,453,236 $ 53,409,035 $ 61,915,710 $ 67,656,968Adjusted value of shares 42,165,000 43,426,433 44,729,226 46,071,103 47,453,236 53,409,035 61,915,710 67,656,968Taxable IncomeRe-capitalized closely held business 5,481,450 5,645,436 5,814,799 5,989,243 6,740,946 7,814,604 8,539,229Taxable income 5,481,450 5,645,436 5,814,799 5,989,243 6,740,946 7,814,604 8,539,229Total distribution to shareholders $ 5,481,450 $ 5,645,436 $ 5,814,799 $ 5,989,243 $ 6,740,946 $ 7,814,604 $ 8,539,229 Page 63
  • 65. GRANTOR DEEMED OWNER TRUST DETAILS - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026GDOT Balance SheetReinvested excess cash flow 11,250,000 1,264,093 4,408,159 7,941,673 11,896,976 20,536,317 23,329,204 18,651,164Loan (11,250,000) (11,250,000) (11,250,000) (11,250,000) (11,250,000) - - -Monster Biz Shares 6.12% 42,165,000 43,426,433 44,729,226 46,071,103 47,453,236 53,409,035 61,915,710 67,656,968Purchase of Policies from LLC1 (1,560,041) (1,609,962) (1,661,481) (1,714,648) (1,769,517) (2,007,121) (2,349,481) (2,582,326)Note payable to Jonathan and Susan (42,165,000) (42,165,000) (42,165,000) (42,165,000) (42,165,000) (42,165,000) (37,165,000) (37,165,000)1 Assumes using a balloon with a mid term rate, interest accrues & can be refinanced as deemed necessary.Net equity $ (1,560,041) $ (10,334,436) $ (5,939,096) $ (1,116,873) $ 4,165,695 $ 29,773,231 $ 45,730,433 $ 46,560,806GDOT Income Tax EstimationRe-capitalized closely held business 5,481,450 5,645,436 5,814,799 5,989,243 6,740,946 7,814,604 8,539,229Earnings from reinvestment account - 25,282 88,163 158,833 299,537 595,975 401,532Total earnings 5,481,450 5,670,718 5,902,963 6,148,077 7,040,483 8,410,579 8,940,761MT AFR 3.2%GDOT Cash FlowDistribution from funds loaned to GDOT 10,548,407 - - - - 7,959,461 2,429,279Interest on $3,750,000 loan (MT AFR) (360,000) (360,000) (360,000) (360,000) - - -Insurance Premium (LLC 1 policy) (349,298) (349,298) (349,298) (349,298) (349,298) (349,298) (349,298)Re-capitalized closely held business 5,481,450 5,645,436 5,814,799 5,989,243 6,740,946 7,814,604 8,539,229Cash flow from reinvestment acct. - 25,282 88,163 158,833 299,537 595,975 401,532Installment Note payments to Jonathan and Susan (1,880,559) (1,880,559) (1,880,559) (1,880,559) (1,880,559) (6,657,559) (1,657,559)Insurance Premium (13,440,000) - - - - (9,363,183) (9,363,183)Cash flow to reinvest - 3,080,861 3,313,106 3,558,220 4,810,626 - -GDOT InsuranceNet death benefit 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000 120,000,000Single Pay Premium w/ Catch Up 13,440,000 - - - - 9,363,183 9,363,183Death benefit (Purchased from LLC 1) 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000 15,000,000Premium (349,298) (349,298) (349,298) (349,298) (349,298) (349,298) (349,298)GDOT NoteOutstanding note balance 42,165,000 42,165,000 42,165,000 42,165,000 42,165,000 42,165,000 37,165,000 37,165,000Interest payment 1,880,559 1,880,559 1,880,559 1,880,559 1,880,559 1,657,559 1,657,559 Page 64
  • 66. IRREVOCABLE LIFE INSURANCE TRUST DETAILS - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Cash gift to current ILIT 20,251 20,251 20,251 20,251 20,251 20,251 20,251 20,251Total outlay to ILITs 20,251 20,251 20,251 20,251 20,251 20,251 20,251 20,251Death benefit from current ILIT 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324 1,055,324Total potential death benefit $ 1,055,324 $ 1,055,324 $ 1,055,324 $ 1,055,324 $ 1,055,324 $ 1,055,324 $ 1,055,324 $ 1,055,324 Page 65
  • 67. CHARITABLE LIFE ESTATE DETAILS - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026EOY value 3,500,000 3,604,708 3,712,849 3,824,235 3,938,962 4,433,336 5,139,452 5,616,018Charitable income tax deduction 1,977,402 -Total Value to Charity at death 3,500,000 3,604,708 3,712,849 3,824,235 3,938,962 4,433,336 5,139,452 5,616,018 Page 66
  • 68. TESTAMENTARY CHARITABLE LEAD TRUST DETAILS - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Charitable Lead Annuity TrustBalance SheetTot. value of TCLAT assets 115,904,584 122,826,257 129,647,096 143,960,470 150,540,929 179,382,594 221,712,741 251,711,330Annual payment to charity if deathoccurs in the column year 9,368,904 9,928,403 10,479,751 11,636,743 12,168,660 14,500,016 17,921,684 20,346,557Benefits to CharityNPV of TCLAT income distributions* 115,904,584 122,826,257 129,647,096 143,960,470 150,540,929 179,382,594 221,712,741 251,711,330Total of TCLAT distributions* 149,902,462 158,854,446 167,676,017 186,187,882 194,698,563 232,000,251 286,746,949 325,544,917Benefits to ChildrenFuture Benefits to Heirs from TCLAT* 112,977,163 119,724,015 126,372,579 140,324,437 146,738,692 174,851,899 216,112,906 245,353,816NPV of benefits to children* 70,403,633 74,608,048 78,751,213 87,445,550 91,442,701 108,961,922 134,674,418 152,896,387 Page 67
  • 69. BENEFITS TO GILBERT FAMILY CHARITY - PROPOSED PLANYEAR Current 2011 2012 2013 2014 2018 2023 2026Charitable life estate 3,500,000 3,604,708 3,712,849 3,824,235 3,938,962 4,433,336 5,139,452 5,616,018New cumulative charitable lifetime gifts 600,000 600,000 1,230,000 1,860,000 2,490,000 5,010,000 8,160,000 10,050,000NPV of TCLAT income distributions 115,904,584 122,826,257 129,647,096 143,960,470 150,540,929 179,382,594 221,712,741 251,711,330Total benefits to foundation $ 120,004,584 $ 127,030,966 $ 134,589,946 $ 149,644,705 $ 156,969,890 $ 188,825,930 $ 235,012,193 $ 267,377,348 Page 68
  • 70. FAMILY INFORMATION CLIENTS Jonathan Gilbert Date of Birth September 16, 1934 Susan Gilbert Date of Birth November 14, 1936 12345 Main St St. Louis, MO 63124 CHILDREN CHILDS NAME DATE OF BIRTH SPOUSES NAMEWilliam Gilbert, Jr. August 30, 1959 Amy Karen Gilbert October 18, 1957 Peter Anderson Janis Jordan July 4, 1962 Jamie Liz Gilbert February 14, 1969 Jim Gilbert November 18, 1963 Jennifer GRANDCHILDREN NAME DATE OF BIRTH Samantha Kirsch December 11, 1995 James Jordan III October 5, 2000 Kathryn Hillman June 30, 1994 Nicole Gilbert January 3, 1998 Laine Gilbert September 15, 1999 Blaire Gilbert July 27, 2001 Elizabeth Jordan July 29, 1998 Oliver Hillman November 24, 1992 Peter Hillman February 22, 1991 John Jordan July 18, 2002 Michael Gilbert July 28, 2003 Luke Gilbert November 27, 2006 Carolyn Gilbert November 27, 2006 Page 69
  • 71. PLAN ASSUMPTIONS JONATHAN AND SUSAN GILBERTThe plan is based on numerous assumptions. Important among these are the yield and growth assumptions contained onthe balance sheet in the Financial Analysis section. Other important assumptions are contained on this Plan Assumptionspage. Tax Rate Assumptions State Income Tax Rate 0% State Inheritance - Estate Tax No state estate tax 7520 Rates Highest rate 3.8% June, 2011 Current rate 3.8% June, 2011 Lowest rate 3.2% May, 2011 Long Term AFR Rate 4.5% June, 2011 Lifestyle Need Assumptions Net annual outlay for Jonathan and Susan s lifestyle needs, not including gifts or income taxes Susans needs $2,000,000 $2 000 000 Annual cost of living increase used in the plan 2% Estimated Planning and Implementation Costs $275,000 Estimated Plan Maintenance - Estimate of annual fees $15,000 Valuation Fees $15,000 Settlement and Administrative Expenses Fixed estate settlement costs $25,000 Variable estate settlement costs, 1st death 0.50% (of assets) Variable estate settlement costs, 2nd death 1.00% (of assets) Page 70
  • 72. DISCLAIMER AND DISCLOSURE JONATHAN AND SUSAN GILBERTInKnowVision does not give tax, accounting or legal advice to its clients. The effectiveness of any of the strategies described will dependon your individual situation and on a number of complex factors.You should consult with your other advisors on the tax, accounting, and legal implications of these proposed strategies before any strategyis implemented.Any discussion in this presentation relating to tax, accounting, investments, regulatory, or legal matters is based on our understanding asof the date of this presentation. Rules in these areas are constantly changing and are open to varying interpretations.Assumption Issues The plan involves numerous assumptions. While we believe that these assumptions are reasonable, it is important tounderstand that it is a virtual certainty that the actual results will differ from those illustrated. Returns on investment and performance offinancial products can cause the results to vary. Changes in tax, trust or property laws can cause plan results to vary. Plan implementationthat differs from that described in the plan will cause the results to vary. Provision of state law may cause the plan results to vary.Tax Opinions The IRS has recently issued new rules for tax practitioners regarding covered opinions, reliance opinions and marketedopinions. While this is an arcane area, suffice it to say that these opinions are often obtained by taxpayers for purposes of avoidingpenalties. These opinions are obtained at substantial cost and after substantial legal analysis. If you believe that such an opinion would behelpful to you prior to entering into any of the transactions outlined in this plan, you should feel free do so.Be advised that nothing in this analysis should be construed by you, your advisors or any one else as a covered opinion, reliance opinion,marketed opinion or any other type of opinion regarding any of the transactions or outcomes outlined in this plan. Page 71
  • 73. APPENDIX JONATHAN AND SUSAN GILBERTMany of our clients like to read about some of the strategies that we have recommended. Both as further education and as areminder of the main points involved in the strategies.The appendix material that follows includes information about the planning strategies recommended. Not all strategies areincluded. Only those that likely require additional explanation.Naturally, we are always happy to answer your questions or review the details of a particular strategy with you at any time. Charitable Remainder Unitrust (CRT) - This trust allows an individual or couple to make a gift, or a series of gifts, normally of appreciated assets, receive a charitable income tax deduction for the present value of the gift and to receive an income stream of a percentage that is based on the value of the trust assets. All types of CRTs have a minimum payout percentage of 5%. The trust is based on the life expectancy of the grantor or a term of years no greater than twenty. When the last income beneficiary dies or at the end of the term, the remainder passes to the charitable beneficiary. TCLAT - A testamentary charitable lead annuity trust is established at the death of the grantor. It pays a fixed annuity percentage to charity for a period of time then the remaining assets are transferred to the grantor’s beneficiaries. Most TCLATs are structured to create a “zero” transfer tax and are often used to eliminate any estate tax that would be due from the grantor’s estate. Charitable Life Estate - Client makes a gift to a charity of his residence and retains all rights and obligations of property ownership for his life. Client receives an immediate charitable income tax deduction for the present value of the gift to charity. At death, the house passes to the designated charity and is removed from the estate of the donor. Private Foundations - A private foundation is a specific type of charity that is established and operated usually by one family. The entity can be a trust or a corporation and the family may have 100% control of the board, make all of the investment decisions and all charitable grants. Private foundations must distribute 5% of its assets annually. There are also strict guidelines as to what type of investments may be owned and there are special limitations as to the amount of charitable income tax deductions are available for contributions. Page 72
  • 74. Family Charity Plan - Client establishes a family limited partnership that is designed to minimize the typicaldiscounting that is normally associated with partnership planning. Client funds the partnership and then donates thelimited partnership interests to designated charities. Client receives a significant income tax deduction and maintainsinvestment control over partnership assets. Often client has a right to borrow from the partnership. Also, client generallymakes an annual distribution to the charities from the partnership, normally 1% of assets.Supporting Organizations (SOs) - SOs are similar to private foundations but are actually public charities that can beestablished by private families. Because they are technically public charities, the higher charitable income tax deductionrules for public charities apply. Unlike private foundations, however, SOs require that a private family may not haveabsolute control of the board. That is, if the board is to have 5 members, the family can only have a maximum of 2 ofthose members. SOs are not required to pay excise taxes, nor are they required to distribute 5% of their assetsannually. Instead, they must distribute 85% of their income.Bargain Sales - A bargain sale occurs when a donor transfers property to a charity for less than the full fair marketvalue of the property or when the charity pays some portion of the value for property it receives. The donor onlyreceives a tax deduction for the contributed portion of the property.Charitable Remainder Annuity Trust (CRAT) - This trust allows an individual or couple to make a single gift, normallyof appreciated assets, receive a charitable income tax deduction for the present value of the gift and to receive anincome stream of a fixed percentage of the original value of the contribution of trust assets. The trust is based on thelife expectancy of the grantor or a term of years no greater than twenty. When the last income beneficiary dies or at theend of the term, the remainder passes to the charitable beneficiary.Gift Annuity - A gift annuity is a form of a bargain sale A donor transfers property to a charity in exchange for a fixed sale.income stream that will last for the life expectancy of the donor. A charitable income tax deduction for the present valueof the gifted property is allowed. The charity is liable and responsible for the payment of the annuity income stream.Net Income with Makeup Unitrust (NIMCRUT) - This is a special type of charitable remainder unitrust (see above)wherein the trust distributes the “net income” that the trust assets earn within the trust. If the trust does not earn enoughincome to pay the stated income percentage payout, the trust creates an “IOU” account that it can pay at a later datewhen the assets earn more income. These trusts are often used when a donor has other income currently but wouldlike income later such as during their retirement. Trust assets can be managed to produce income or not. Page 73
  • 75. Flip Charitable Remainder Unitrust (Flip CRT) - This type of CRT operates like a NIMCRUT when it is originallyestablished, paying out only the income it earns at a set percentage. At some triggering event in the future, the FLIPCRT changes character and operates like a standard CRT (SCRUT) whereby it pays out a fixed percentage of itsannual valuation. This type of CRT is often used when a gift that produces little current income (such as land) istransferred before it is sold. Upon sale, the proceeds are reinvested and the CRT begins paying its regular percentage.Charitable Lead Unitrust (CLUT) - This trust operates very much like the CLAT. However, while the percentagepayout remains fixed, the trust’s distribution amount varies depending on the value of the trusts assets which arecomputed annually. Because of this, the CLUT cannot have a “zero” gift amount as there will always be somecalculated remainder that passes to the heirs. CLUTs are often used for gifts to grandchildren or other “skipgenerations” because the generation skipping tax amount can be calculated when the trust is first established.Charitable Lead Annuity Trust (CLAT) - This trust distributes income to charity over the life of the donor or for aperiod of years. At the end of the trust term, the trust assets are either distributed back to the grantor or to heirs. Thesetrusts are used to either transfer assets to heirs with little or no gift tax or to create a different way to make gifts if thegrantor has already used significant charitable income tax deductions. CLATs have no minimum payout percentage.Donor Advised Funds (DAF) - A DAF is a special account established at a Community Foundation. It allows a donorto make a gift of property without specifying the final charitable purpose for the gift. Donors often are allowed tomaintain money management responsibility for the DAF and can also direct the Community Foundation as to where thecharitable funds are ultimately distributed. The Community Foundation is not technically bound to direct the funds to thedonor’s selection but as a practical matter most follow the donor’s wishes. DAFs have no annual minimum requirementfor distribution and are usually inexpensive to establish.Limited Liability Company/Charitable Remainder Trust (LLC/CRT) - In this strategy a gift of appreciated property ismade to an LLC. The LLC then gifts the property to a CRT in exchange for the income interest. The LLC is then sold toa Grantor Deemed Owned Trust (GDOT) in exchange for a note. Because of the fact that the LLC only owns theincome stream due from the CRT, and the LLC has restrictions on marketability and liquidity, the “discount” availablefor the sale to the GDOT should be substantial.Family Limited Partnership (FLP) - FLPs are a form of business entity that can be utilized to facilitate the transfer ofassets. Ownership interests are divided into General Partner (GP) and Limited Partner (LP) shares. GPs maintaincontrol of the entity even though they may own a small percentage of the total FLP. LP interests have ownership but nocontrol. Because the LPs have no control over their interests FLPs often receive significant valuation adjustments whenvalued by appraisers. This allows the LP units to be transferred or sold at less than their full monetary value. FLPs alsoenjoy strong creditor protection and are therefore effective for family asset protection purposes. Page 74
  • 76. Long Term Care Insurance (LTC) - This type of insurance is meant to protect families from the catastrophic costs ofcare due to a prolonged illness. Coverage is usually provided as a “per day” cost and many policies feature variousriders that protect against inflation. Coverage applies not only for nursing home and rehabilitation facilities but for homehealth care costs as well. Policies can be structured so that they are paid for over a lifetime or for a period of years.Some policies refund the premiums that have been paid at the death of the insured. LTC is income tax deductible to CCorporations and owners of those corporations may “discriminate” as to which employees are covered.Walton Grantor Retained Annuity Trust (Walton GRAT) - In a typical GRAT assets are transferred to a trust and thegrantor of the trust receives an income stream for a period of years. What is left in the trust at the end of its term istransferred to beneficiaries, normally the grantor’s heirs. The normal structure of a GRAT is meant to use “leverage” toreduce or eliminate the taxable gift to the heirs form the GRAT. This type of normal GRAT causes all of the GRATassets to be included in the grantor’s estate if the grantor dies during the GRAT period. The Walton GRAT provides anexception to this rule, thereby allowing GRAT payments to continue after death and the GRAT assets not reverting tothe grantor.Revocable Living Trust (RLT) - A foundational document of most estate plans, the RLT is a trust that is established byan individual for the purpose of holding and managing the assets of the individual. The trust is a non-entity for incometax purposes. That is, the grantor of the trust is still responsible to report and pay the income tax due on any trustassets. RLTs are also effective in the event of a disability or incompetence of the grantor, in that they name asuccessor trustee who can step in to the shoes of the grantor without a court proceeding. RLTs are often established inorder for the grantor’s estate to avoid probate. Further, a properly drafted RLT can be utilized to take advantage of theestate exemption in order to minimize estate taxes.Preferred Limited Partnership (LP) - This type of LP creates two different classes of limited partner LP units are partner.allocated between “common” and “preferred” classes. The common interests are generally entitled to receive any of thegrowth associated with the underlying assets of the LP. The preferred receive a stated percentage income return, e.g.5%. Because of the possible disparity of return between the two types of units often have different values whenappraised. This allows the General Partner of the LP to make different decisions as to the ultimate disposition of thetwo types of interests. This type of LP can provide substantial planning leverage for the appropriate estate.Life Insurance - While life insurance has been available for a very long time it is often dismissed. However, properlystructured life insurance can add an element of safety and certainty to most estate plans. Life insurance death benefitsare generally income tax free and policies that are properly owned outside of the estate can also be estate tax free.Many policies have guarantees that will keep the policy in force as long as premiums are paid in a timely fashion,regardless of interest rate or company mortality fluctuations. Page 75
  • 77. Rent to Own - This strategy couples a short term Qualified Personal Residence Trust (QPRT) with an Irrevocable LifeInsurance Trust (ILIT). The ILIT is a beneficiary of the QPRT and at the termination of the QPRT term receivespremium payments in the form of rental income. This allows the client to pay large insurance premiums without annualgifting, Crummey notices or income tax consequences.Life Settlements - This strategy involves the sale of a life insurance policy to an independent third party. There aremany reasons to consider this type of transaction. The client may no longer need the insurance; the policy may be indanger of lapsing while the client is unwilling or unable to make the necessary premium payments; or there may benewer, more appropriate and cost effective insurance needed for the clients’ current circumstances.529 Plans - 529 Plans represent a special section of the tax code which has been enacted to encourage the funding ofpost high school education. Each state has its own plan but individuals may choose the plan of any state they wish touse. 529 plans allow an individual to establish an investment account for themselves or for another person (normallychildren or grandchildren). Investment returns grow on a tax free basis and, if utilized for post high school educationalpurposes, remain tax free. While the funds are generally out of the estate of the grantor of the plan, the grantor maytake them back at any time. While they will have to pay income tax as well as a 10% penalty on the earnings, it is oftenreassuring to have the knowledge that the funds are retrievable in the event of an economic emergency. The lawfurther allows the grantor to make five years of gifts to the 529 plan in one year. That is, $60,000 can be depositedcurrently in a plan for the benefit of another, and then the grantor must wait until the sixth year to make any additionaldeposits.Family Limited Liability Company (FLLC) - Much like the FLP, a FLLC is a type of business entity that provides forthe centralized pooling and management of family assets. Owners of FLLC units are considered “members” and thereis usually a single “managing member”. FLLCs are a relatively new for of entity and there is less case law regarding FLPs. However,their uses and nuances when compared to FLPs However many jurisdictions have passed favorable FLLC statutesand therefore the FLLC should be carefully considered in the proper jurisdiction.Crummey Powers - Most traditional life insurance trusts contain what are known as “Crummey Powers” which grantthe beneficiaries of the trust the right to withdraw money that has been contributed to the trust (normally to payinsurance premiums), for a period of time. This allows the contribution to be a gift of a “present interest” and thereforequalify for the application of the annual exclusion. The name “Crummey” power derives from the court case thatoriginally challenged and won on this principle.Jurisdictional Trusts - These trusts are normally established because of the favorable laws of a specific jurisdiction.These could be any type of trust, revocable or irrevocable, grantor or non-grantor. What’s important is that the specificlegal foundation of the jurisdiction is favorable for the application sought. These could be state specific, i. e. Delawarefor asset protection or Dynasty provision, or could even be international such as Cook Islands or Nevis for assetprotection. Page 76
  • 78. Succession Planning - This is the process by which the owner of a closely held business determines who will takeover the business and how and when the transition will take place. While not necessarily a codified estate planning“technique” a business without an organized succession plan will be more likely to fail and have to be sold or liquidated.The economic result to the family may be different than planned for or anticipated.Grantor Retained Annuity Trust (GRAT) - The GRAT transaction entails the transfer of assets to a trust whereby thegrantor retains an income from the trust for a period of years and the remainder transfers to beneficiaries at the end ofthe trust term. The “remainder” is calculated using IRS tables and is considered a gift to the remainder beneficiaries.Therefore, many GRATs are structured to produce a “zero” gift and hope to take advantage of the possible arbitrage ofthe return of the assets in the GRAT compared to the IRS rates utilized to calculate the trust remainder. Thedisadvantage of the regular GRAT transaction is that if the grantor dies during the trust period, all of the assets in theGRAT are included back in the grantors estate.Sale for Installment Note - This transaction is normally coupled with other techniques to improve the results. Often afamily will use an FLP or FLLP and sell interests that have been appraised at a reduced value because of lack ofliquidity and marketability. The buyer is often a trust for the beneficiaries, which purchases the discounted assets for theinstallment note. While the note is in the estate of the seller, it is usually of less value than the assets that have beensold. The note can be structured to be paid as “interest only” or it may be amortized.Gifting - A simple way to transfer assets to beneficiaries. An individual may currently gift $11,000 of property to anyother individual, annually ($12,000 beginning in 2006). Further, every individual can currently give away up to $1million of assets during their lifetime without incurring gift taxes. Making gifts of property that is discounted in some waycan be advantageous in transferring more than the statutory amount.Annuity Withdrawal - Often families ignore the funds that clients have in commercial annuities. Since funds areaccumulating on a tax-deferred basis, this is often a logical approach. However, since annuities remain in the estate ofthe owner and are therefore subject to estate tax and income in respect of a decedent tax, it is often advisable to begina systematic program of annuity withdrawal. Frequently the after-tax proceeds of the withdrawal can be utilized tosubsidize lifestyle or to purchase life insurance to replace the dollars that would be lost to the double taxation of theannuity.Dynasty Trust - This type of trust allows assets that are contributed to the trust to remain in the trust for multiplegenerations. Because of this provision, the trust assets will pass outside of the estate tax system and will also beprotected from the claims of a trust beneficiary’s creditors. This type of irrevocable trust must be established in ajurisdiction that allows multi-generational trusts. Page 77
  • 79. Premium Finance - When purchasing life insurance, many families face the possibility of making taxable gifts becausethe amount of the premium exceeds the amount of annual gifting available to the insured. Using the option of premiumfinancing may alleviate this problem. Funds are provided by a third party lender who pays the premium. The insuredusually pays only the interest on the borrowed funds while the principal of the loan accumulates and is often repaidfrom the insurance proceeds at the insured’s death. While complicated, premium financing can be an interestingsolution for funding large policies.Buy-Sell Agreements - This type of contract is normally associated with the owners of a closely business to allow forthe disability, abandonment of the business, or untimely death of any of the owners. The agreements describe theprovisions by which an owner’s share of the business will be redeemed. Buy-sells can be funded with disability and lifeinsurance or they may be unfunded and, therefore, rely on the cash flow of the business to fund the buy out. Providingliquidity for the estate of the business owner is often the reason for the formation and execution of a buy-sell.Irrevocable Life Insurance Trust (ILIT) - In many estate plans, it is best to own life insurance outside of the taxableestate. The ILIT is the most common and flexible form of trust to accomplish this function. The ILIT will be the ownerand beneficiary of one or more life insurance policies and will obligated to pay the premiums, collect the proceeds atdeath and distribute the funds to beneficiaries per the provisions of the trust. This is a good way to engage professionalmanagement in the management and oversight of the trust funds. ILITs may be established as Dynasty Trusts, if sodesired.Asset Protection - This is a broad category of planning which may involve one or more different strategies. Each of thetechniques seeks to provide insulate assets from the attack of creditors. Various trusts, FLPs, FLLCs and other entitiesmay be considered for asset protection. Further, there are choices of jurisdiction both domestic and foreign that may protection.provide favorable environments for asset protection Those in high risk profession or those with high risk assetsgenerally fit the profile for implementing asset protection strategies.Intra Family Loans - A simple solution that allows family members to make loans at the current Applicable FederalRate (AFR), this strategy allows for possible arbitrage gains when the AFR is low relative to long term investmentresults. Furthermore, it is often possible for discounts to apply to the value of the notes in the event of the death of thelender.Corporate Recapitalization - Many closely held companies only have one class of stock, known as common votingstock. When considering options for estate planning, the closely held company stock often represents a major portion ofthe estate. In order to facilitate transfer while retaining control of the company, it is possible to “recapitalize” thecompany by redeeming the outstanding shares and issuing new shares which are divided between “voting” and “non-voting” shares. The non-voting shares are then transferred by sale or gift and because of their non-voting statusappraisals often reflect a greatly reduced value for these shares. Recapitalizations are available to S corporations aswell as C corporations. Page 78
  • 80. Self Canceling Installment Note (SCIN) - Like other installment notes, the SCIN originates when assets are sold. Asthe name implies the SCIN obligation is cancelled when the obligation is fully paid or at the death of the seller. Becauseof the self-canceling feature of the SCIN, the seller receives a “premium” amount that is higher than a normalinstallment obligation. The premium is reflected in one of two ways; either more principal is added to the balance or ahigher (than current federal tables) interest rate is applied to the obligation. SCINs may be effective in circumstanceswhere the seller is not expected to live to their IRS computed life expectancy.Grantor Deemed Owned Trust (GDOT) - This type of trust has several unique properties that make it a very powerfulestate planning tool. First, when assets are transferred to the trust either by gift or by sale, they are removed from theestate of the grantor. Second, the assets in the GDOT remain income taxable to the grantor of the trust. While this maynot seem like a positive attribute, the grantor’s recognition and payment of the income taxes essentially allows theassets in the GDOT to grow free of income taxes outside of the estate. This can greatly increase the ultimate value ofthe assets transferred to the trust.Offshore Captive Planning - Business owners often have risks that are either under-insured or are too expensive toinsure. Those who have excess taxable income may choose to establish their own insurance entity, know as a“Captive.” These are most done in international jurisdictions since the tax laws favor this type of arrangement. Thesestructures are very complex and require specialized planning but can also provide very favorable income and estate taxbenefits.Qualified Personal Residence Trust (QPRT) - This technique involves transferring a residence by gift to a trust for aperiod of years. Normally, a gift tax return is filed for the year that the QPRT is funded. At the end of the trust period,the residence becomes the property of the beneficiaries of the trust. Because the gift is made currently and vests in thebeneficiary at a later date, there is a discount on the value of the transfer which is calculated utilizing IRS tables. Onerisk of the QPRT is if the transferor dies during the QPRT term, the house reverts to the estate of the transferor. Afterthe QPRT terminates, the transferor should pay rent to the transferees as in any other commercial transaction.Leveraged Roth Conversions - Under certain circumstances it is possible to convert a traditional IRA account to aRoth IRA. This may be an effective strategy, though it requires the payment of income taxes on the converted amount.Use of borrowed funds to pay taxes can make this a very strong strategy.Employee Stock Ownership Plans (ESOP) - Closely held businesses often have no clear exit strategy. An ESOP canprovide a ready market since the ESOP effectively sells a portion of the company stock to a qualified plan which mustinclude the employees of the company. The owner may receive property which will allow a diversification of his assetsthat have been concentrated in their own company. ESOPs take many forms and are often complex transactions. Page 79
  • 81. 412(i) - This type of defined benefit pension plan is structured to allow the investments in the plan to be either lifeinsurance and/or commercial annuities. Normally these products are designed to produce a low guaranteed rate ofreturn which causes the annual contribution and, therefore, the income tax deduction to the participants in the plan, tobe relatively high. 412(i) may be appropriate for an older business owner who has few employees.IRA Maximizer - This strategy is for those individuals who have significant balance in their IRA (or other qualified plan)and who do not need the funds to live on. Normally, the IRA invests all or some of its assets in a newly formed familylimited partnership (flp) and the flp invests all or some of its assets in a restricted management account (rma). Theresult of the transaction is that there will be a reduction in appraised value of the account because of the illiquid natureof the rma and the flp. By structuring the transaction properly, the IRA owner may reduce income taxes on requiredminimum distributions and estate taxes because of the reduction in apprised value.Limited Partnership Owned Life Insurance - An alternative to owning life insurance in an irrevocable life insurancetrust (ILIT), families often use a Limited Partnership. This is normally done as one step in a transaction whereby thelimited partnership units will be sold or otherwise transferred out of the estate of the insured. Further, there are usuallyother assets contributed to the partnership that will fund the insurance premiums. Done properly, the life insurancedeath benefit can remain outside of the estate of the insured while some degree of control through the control grantedby retaining the General Partner interest.Family Bank - a combination of strategies that may include an LLC and/or a multi-generational irrevocable trust. Thepurpose of the family bank is to create an entity that will allow several generations of family members to have access towealth for various purposes but also with a great degree of monitoring and supervision. A family bank may lend moneyto an heir to purchase a home or to start a business but will first assess the appropriateness of the transaction against aset of guidelines that have been drafted into the formation documents documents. Page 80

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