This document provides an overview and summary of various estate planning techniques to eliminate estate tax liability. It discusses maintaining control over assets through trusts, using discounts for lack of control and marketability, and structures like GRATs, SCIN-GRATs and private annuities to transfer wealth without gift or estate tax consequences. The stakes of estate planning are highlighted, with penalties for valuation understatements. Historical context on estate tax laws and the conflict between capital gains and estate tax rates are also summarized.

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KFB RICE, LLP
12100 WILSHIRE BLVD., SUITE 245
LOS ANGELES, CALIFORNIA 90025
www.KFBRice.com
Owen Kaye
(Owen@KFBLawGroup.com)
Michael Fedalen
(Michael@KFBLawGroup.com)
Neda Barkhordar
(Neda@KFBLawGroup.com)
David L. Rice
(DRice@LawRice.com)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Russell M Ozawa
(ROzawa@LawRice.com)
Elizabeth Allen
(Elizabeth@KFBLawGroup.com)
Georgiana Young
(Gina@KFBLawGroup.com)
Hollee Kassim
(Hollee@KFBLawGroup.com)
2780 Skypark Dr. #475
Torrance, CA 90505
310-517-8600
Of Counsel
Bruce Givner
Bruce@KFBLawGroup.com
James C. Fedalen
Jim@KFBLawGroup.com
Stephen A. Mihaly
SAMihaly@Earthlink.net
PHONE (310) 307-3441
FAX (310) 307-3944
July 23, 2020
Building Blocks To
Eliminate The Estate Tax
1. Introduction.
1.1. Purpose Of Today’s Presentation.
This is for the 1/10th
of 1% of the population that is subject to the estate tax under the
current $11,580,000 lifetime transfer tax exclusion. Of course, that percentage will increase:
 on January 1, 2026, when the exclusion is scheduled to decrease to $6,400,000
per person.

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Building Blocks To Eliminate The Estate Tax
July 23, 2020
Page 2 of 16
 If the Democrats take control of both the Senate and the presidency on November
3, 2020.
1.2. The Stakes.
IRC §6662 20% accuracy-related penalty.
IRC §6662(g) 40% substantial estate or gift tax valuation understatement penalty.
IRC §6695A appraiser penalty – greater of 10% of the underpayment, $1,000, or 125%
of the gross income received from preparing the appraisal.
Internal Revenue Code §2036.
(a) General rule
The value of the gross estate shall include the value of all property to the extent
of any interest therein of which the decedent has at any time made a transfer (except
in case of a bona fide sale for an adequate and full consideration in money or
money’s worth), by trust or otherwise, under which he has retained for his life or for
any period not ascertainable without reference to his death or for any period which does
not in fact end before his death—
(1) the possession or enjoyment of, or the right to the income from, the
property, or
(2) the right, either alone or in conjunction with any person, to designate the
persons who shall possess or enjoy the property or the income therefrom.
Note #1:
There are two different ways §2036 can apply. One is if the parent retains the
income. Two is if the parent can designate who will enjoy the income.
Note #2:
That parenthetical about a transfer for fair market value is in all 3 “string” Code
sections. That signals the importance of appraisals.
1.3. The History.

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Building Blocks To Eliminate The Estate Tax
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Building Blocks To Eliminate The Estate Tax
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1.4. The Conflict.
For wealthy families:
Tax Rate Above Due Rate Note
Estate 40% Exclusion 9 months after
death
Can be extended over 5-15 years
under §6166
Capital
Gains
33% or
37.1%
Basis Never There are 12 to 21 ways to reduce,
defer or eliminate the capital gains tax
For everyone else: with no estate tax, we want the assets included in the parents’ estate
to get a step-up in basis for the children’s benefit.
1.5. The Goals.
No estate tax.
No estate tax audit.
2. Maintaining Dictatorial Control.
2.1. The Mantra.
Simon (“Stuffy”) Singer: “You want to control everything and `own’ nothing.”
2.2. A Children’s Trust.
Bruce Givner: “Ask not what you can do for your children – ask what your children’s trust
can do for you.”
#1: Pick the trustee you trust to do whatever you tell him or her to do.
#2: You can remove the trustee any time you want and name a new one.1
#3: Protector mechanism.2
The protector can:
 Remove a beneficiary.
 Add a beneficiary who is a:
o Lineal descendant of you.
o Spouse of your lineal descendant.
o Charity.
 Change the manner of distribution the beneficiaries.
1
In theory limited by IRC §672(c) so you can’t name someone who is related or subordinate. But you can do so
through the protector mechanism.
2
If you need a protector, your then CPA appoints one. Your protector resigns immediately after signing the
document which makes the changes you wish made.

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 Change the allocation among the beneficiaries.
#4: The children’s trust only owns an interest in an entity you otherwise control, e.g.,
non-voting stock in an “S” corporation or limited partnership interests in an FLP.
#5: We do the “children’s trust” under the laws of Nevada or one of the other 13 states
which allow domestic asset protection trusts so you can be added as a
beneficiary3
after 10 years has passed.4
3. Discounts.
3.1. Entity.
If the FLP’s assets are income producing real estate, the combined discount will be ≈
40%:
$1,000,000
X 80% 20% lack of control
$ 800,000
X 75% 25% lack of marketability
$ 600,000
If the FLP’s assets are stocks and bonds, the combined discount will be ≈ 30%:
$1,000,000
X 84% 16% lack of control
$ 840,000
X 84% 16% lack of control
$ 705,600
3.2. Tiered Entities.
Roy O. Martin, Jr., T.C. Memo 1985-424 (August 14, 1985): “Both parties agree that
discounts are appropriate in this case to reflect the fact that the gifted Arbor shares at issue
represent only minority interests in a closely held corporation which, in turn, owns minority
interests in seven other closely held corporations. ”
See also Jane Z. Astleford, T.C. Memo 2008-128 (May 5, 2008).
3
Givner and Singer, “The Completed Gift Asset Protection Trust,” Journal of Financial Service Professionals,
September, 2011 p. 60.
4
Bankruptcy Code §548(e) brings into the bankruptcy estate any “self settled trust or similar device” funded
within 10 years of the bankruptcy proceeding.

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Rabe, “The Application of Multi-Level Valuation Discount In The Gift or Estate Valuation
of a Tiered Entity – A Review Of Relevant Judicial Precedent,” Willamette Insights (Winter
2010).
3.3. GSD.
3.3.1. Ideal Estate Tax Planning.
85 year old parent gives the 55 year old son a 30 year, interest only note, at the
current long-term AR of 1.12%. Parent dies at 95. Appraiser opines the note is subject to an
80% discount due to the long remaining term at a below-market interest rate.
3.3.2. The Problem With This Ideal Estate Tax Planning.
IRC §2036: parent can’t give a note for longer than life expectancy.
3.3.3 The Solution.
Sprinkle pixie-dust on it and call it something else.
3.3.4. Conventional GSD.
3.3.5. Supercharged GSD.
3.3.6. The Cases.

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Building Blocks To Eliminate The Estate Tax
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4. Structures That Eliminate The Estate Tax.
4.1. The Lifetime Exclusion.
4.1.1. Reasons To Use It.
 May be gone due to the results of the November 3, 2020, elections.
 Get appreciation out of the client’s estate.
 Uncertainty of client’s continued life.
4.1.2. Reasons To Save It.
 To use against assets the client won’t want to transfer, e.g., the principal
residence and a certain amount of liquid assets.
 To use against assets the client can’t easily transfer, e.g., an IRA or other
retirement plan asset.
 To include assets in the estate so they get a step-up in basis.

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Building Blocks To Eliminate The Estate Tax
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Page 10 of 16
4.2. GRATs.
Primarily for “S” corporations.
Client says the business is worth $10,000,000.
Why? Because his profit is $1,000,000 per year and the client wouldn’t sell it for less.
We know it will appraise for 4, 5 or 6 times EBITDA.
Assume $6,000,000.
Assume 40% combined discounts for lack of marketability and lack of control get it to
$3,600,000.
Assume the client is comfortable with a $700,000 per year dividend.
$700,000 ÷ $3,600,000 = 19.44%.
Gifts Term Of
Years
0 6
$142,370 5
$828,424 4
$1,517,136 3
$2,208,648 2
Assume the client is only comfortable with a $500,000 per year dividend.
$500,000 ÷ $3,600,000 = 13.89%
Gifts Term Of
Years
0 8

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$155,074 7
$641.313 6
$1,129,502 5
$1,619,692 4
$2,111,781 3
4.3. SCIN-GRATs.
One Page SCIN-GRAT Diagram
Mom (75) and
Dad (77)
Children’s
Trust #1
#1 transfer $5,000,000
LP interests
#2 pay with 15
year SCIN
5.072% interest
LLC
#3 Contribute SCIN
and other (assets)
Children’s
Trust #2
#4 Transfer interests in LLC
for a 11 or 12 year GRAT
Dynasty Trust
#5 buys
contingent
remainder
interest

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1. Mom and Dad have $8,333,000 of income producing real estate generating 3.05% ($254,167).
2. They contribute it to a family limited partnership in which it is subject to a 40% combined discount
for lack of marketability and lack of control, resulting in a value of $5,000,000 earning 5.08%.
3. They transfer the LP interests to the heirs’ trust #1 in exchange for a 15 year SCIN at 5.072%.
4. They contribute the SCIN to an LLC which, with other assets, entitles it to a 30% discount. At
the new ($5,000,000 X 70% = ) $3,500,000 value it has a cash flow percentage of 7.26%.
5. The following GRAT terms at 7.26% producing gifts as follows: 14 years ($96,677); 13 years
($331,373); 12 years ($566,466); 11 years ($802,957); and 10 years. (1,040,857).
6. Once the GRAT transaction is complete, Mom and Dad will either (i) die before the end of the
SCIN term or (ii) survive the GRAT term, in either case with a zero taxable estate.
7. The sale of the contingent remainder interest to the Dynasty Trust is simply a more elegant
solution (to remove the value even from the children’s trust).
4.4. Private Annuity.
4.4.1. The §7520 Rate.
August, 2020 0.4%
July, 2020 0.6%
June, 2020 0.6%
May, 2020 0.8%
April, 2020 1.2%
March, 2020 1.8%
February, 2020 2.2%
January, 2020 2.0%
December, 2019 2.0%
November, 2019 2.0%
October, 2019 1.8%
September, 2019 2.2%
August, 2019 2.2%
July, 2019 2.6%
June, 2019 2.8%
May, 2019 2.8%
April, 2019 3.0%
March, 2019 3.2%
February, 2019 3.2%
January, 2019 3.4%
December, 2018 3.6%

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November, 2018 3.6%
October, 2018 3.4%
September, 2018 3.4%
August, 2018 3.4%
July, 2018 3.4%
June, 2018 3.4%
May, 2018 3.2%
April, 2018 3.2%
March, 2018 3.0%
February, 2018 2.8%
January, 2018 2.6%
December, 2017 2.6%
November, 2017 2.4%
October, 2017 2.2%
September, 2017 2.4%
4.4.2. The Mortality Component.
IRS Regulation §25.7520-3 Limitation on the application of §7520.
(b) Other limitations on the application of §7520 -
(3) Mortality component.
The mortality component prescribed under §7520 may not be used to determine the
present value of an annuity, income interest, remainder interest, or reversionary interest if an
individual who is a measuring life dies or is terminally ill at the time the gift is completed. For
purposes of this paragraph (b)(3), an individual who is known to have an incurable illness or
other deteriorating physical condition is considered terminally ill if there is at least a 50%
probability that the individual will die within 1 year. However, if the individual survives for
eighteen months or longer after the date the gift is completed, that individual shall be presumed
to have not been terminally ill at the date the gift was completed unless the contrary is
established by clear and convincing evidence.

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4.4.3. The Exhaustion Test.
* Regular.
Results From Brentmark Estate Planning Tools 2020
Age LE Approximate Exhaustion
Annuity Ratio

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Rate
60 23.7 5.16% 107%
61 22.8 5.34%
62 22.0 5.52%
63 21.1 5.72%
64 20.3 5.93%
65 19.5 6.16% 127%
66 18.7 6.40%
67 17.9 6.66%
68 17.1 6.94%
69 16.3 7.24%
70 15.5 7.56% 153%
71 14.8 7.90%
72 14.1 8.28%
73 13.4 8.68%
74 12.7 9.11%
75 12.0 9.58% 186%
76 11.4 10.08%
77 10.7 10.62%
78 10.1 11.20%
79 9.5 11.82%
80 9.0 12.50% 227%
81 8.4 13.22%
82 7.9 14.01%
83 7.4 14.86%
84 6.9 15.77%
85 6.4 16.76% 273%
86 6.0 17.83%
87 5.6 18.98%
88 5.2 20.23%
89 4.8 21.58%
90 4.5 23.03% 319%
91 4.2 24.59%
92 3.9 26.27%
93 3.6 28.09%
94 3.4 30.04%
95 3.2 32.13% 348%
* Reducing The Ratio.
85 year old Term Ratio Attained

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Of Years Age
7 0 92
10 50% 95
15 130% 100
20 200% 105
25 273% 110
5. Conclusion.
Benjamin Franklin: “If you fail to plan, you are planning to fail.”