1.
2012
Want To Save A
FORTUNE
On Income Taxes?
Givner & Kaye,
A Professional Corporation 1
Owen@GivnerKaye.com

2.
Want To Save A Fortune On Taxes?
The Best Planning Is Done At The
Beginning Of The Year:
1. More time to review the alternatives.
2. Time to calmly and carefully put the structures in place.
3. Advisors are not hassled with year-end crises.
4. Able to adjust to the actual results throughout the year.
Givner & Kaye,
A Professional Corporation 2
Owen@GivnerKaye.com 2

3.
Want To Save A Fortune On Taxes?
What We Will Cover:
1. The Big, Easy Deductions. P. 5
1.1. Defined Benefit Pension Plans. P. 6
1.2. Captive Insurance Companies. P. 15
2. Charitable Alternatives. P. 25
2.1. Grantor Charitable Lead Annuity Trusts. P. 26
2.2. Charitable Remainder Annuity Trusts. P. 31
2.3. Charitable Limited Partnerships. P. 36
3. Investments. P. 39
3.1. Oil and Gas. P. 40
3.2. Real Estate (Component Depreciation). P. 43
4. Questions and answers. P. 47
Givner & Kaye,
A Professional Corporation 3
Owen@GivnerKaye.com 3

4.
Want To Save A Fortune On Taxes?
Our Process
Four Phases – Four Engagements – Four Fixed Fees
(so the client does not feel “on the clock”).
Review – Design – Implement - Maintain
Givner & Kaye,
A Professional Corporation
Owen@GivnerKaye.com 4

5.
Want To Save A Fortune On Taxes?
The Big, Easy
Deductions
Givner & Kaye,
A Professional Corporation 5
Owen@GivnerKaye.com 5

6.
Want To Save A Fortune On Taxes?
Defined
Benefit
Pension Plans
Givner & Kaye,
A Professional Corporation 6
Owen@GivnerKaye.com 6

7.
Want To Save A Fortune On Taxes?
Tax Qualified Employee Retirement Plan
Joe
Trustee
Plan
Owner committee
The corporation The Plan The Trust
(Plan Sponsor)
$ $
Employees/
participants
Givner & Kaye,
A Professional Corporation 7
Owen@GivnerKaye.com 7

8.
Want To Save A Fortune On Taxes?
There are two types of plans: one that defines how much goes in – one
that defines how much goes out
Corporation
(plan sponsor)
Money goes in – define (limit) the contribution
Retirement
Trust Money goes out – define
(limit) the benefit
Employee/
Participant
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com 8

9.
Want To Save A Fortune On Taxes?
If you limit how much goes in (IRC
Section 415(c) - $49,000), then there is
no limit on how much goes out. So if you
are going to buy Qualcomm at $1 and
Defined have it go to $100, do so in a defined
Contribution contribution plan; it will not impact your
Plan future contributions.
Employee/
Participant
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com 9

10.
Want To Save A Fortune On Taxes?
If you limit how much goes out (IRC
Section (b), (d) - $195,000), there is no
specific limit on how much goes in. So if
Defined
you want a contribution of more than
Benefit
$49,000 per person, you need a defined
Plan
benefit pension plan.
Employee/
Participant
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com 10

11.
Want To Save A Fortune On Taxes?
In General:
Sample maximum contributions at various ages:
35 – 5 years past service - $65,000 + DC plan @ 6% of comp + $16,500 in 401(k) X 2 spouses in
year one is $190,000. Over 5 years it’s $1,000,000.
45 - $130,000 + $30,000 X 2 spouses = $320,000, or $1,600,000 over 5 years.
55 - $237,000 + $30,000 X 2 spouse = $534,000 or $2,670,000 over 5 years.
Plus life insurance.
Using the “cushion method” the amount in the first year might be it could be 3 to 4 times that amount
(though zero in the second year).
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com 11

12.
Want To Save A Fortune On Taxes?
Monthly Benefit Contribution
at RA 62
Helen 11/16/63 $60,000 $4,878.00 $ 29,276.00
Michael 3/26/74 $40,000 $2,402.00 $ 11,045.00
George 10/6/77 $45,000 $3,450.00 $ 12,147.00
Lucy 9/5/70 $30,000 $1,773.00 $ 9,871.00
Paul 8/29/76 $25,000 $1,173.00 $ 4,131.00
Steven 11/18/79 $40,000 $1,615.00 $ 5,009.00
Gary 8/2/75 $90,000 $3,403.00 $ 13,658.00
Jane 10/25/57 $250,000 $7,634.00 $226,464.00
Sam 9/2/51 $250,000 $7,667.00 $306,102.00
Totals $617,703.00 [86.2% for bosses]
Givner & Kaye,
A Professional Corporation 12
Owen@GivnerKaye.com 12

13.
Want To Save A Fortune On Taxes?
Is There A Good Set Of Facts?
1. You cannot determine if the facts are good simply by
talking to your CPA.
2. You cannot determine if the facts are good simply by
talking to a third party administrator or actuary.
3. The proper construction of the facts is a process that we
must discuss with you and help you create. It must be
conducted under the attorney‐client privilege.
4. The presentation of the facts is absolutely critical to the
outcome and will make the difference between an attractive
plan and one that will not work.
Givner & Kaye,
A Professional Corporation
Bruce@GivnerKaye.com 13

14.
Want To Save A Fortune On Taxes?
Givner & Kaye,
A Professional Corporation 14
Owen@GivnerKaye.com 14

15.
Want To Save A Fortune On Taxes?
Captive
Insurance
Companies
(“wealth captives”)
Givner & Kaye,
A Professional Corporation 15
Owen@GivnerKaye.com 15

16.
Want To Save A Fortune On Taxes?
Captive Insurance Companies
for the Middle Market
Originally used only by the very largest companies,
captives are no longer the exclusive tool of those in the
Fortune 500. There are now well over 5,000 captives
writing over $50 billion in annual premiums. Many of
these captives insure middle market companies and
successful professionals.
Givner & Kaye,
A Professional Corporation 16
Owen@GivnerKaye.com 16

17.
Want To Save A Fortune On Taxes?
IRC Section 831(b)
A small property and casualty insurer with
annual premium income not exceeding $1.2
million pays no tax on its underwriting profits
but is taxed solely on its investment income. In
this case, the business that pays premium to a
captive deducts the premium expense while the
captive pays no tax on the underwriting profits.
Givner & Kaye,
A Professional Corporation 17
Owen@GivnerKaye.com 17

18.
Want To Save A Fortune On Taxes?
Estate Planning
Estate planning is an important business
continuity consideration for closely held companies
and for their owners. A CIC can be a key component
in estate planning with the captive being owned by
or for the benefit of the next generation (a dynasty
trust) and so enabling a lifetime transfer of pre-tax
underwriting profits.
Givner & Kaye,
A Professional Corporation 18
Owen@GivnerKaye.com 18

19.
Want To Save A Fortune On Taxes?
Common Captive Coverage
Property & Casualty
* Director & Officer * Subsidence
* General Liability * Exclusions
* Employment Practices * Deductible Reimbursement
* Litigation Defense * Difference in Conditions
* Construction Defect * Difference in Limits
* Warranty * Workers’ Compensation
* Mold
Givner & Kaye,
A Professional Corporation 19
Owen@GivnerKaye.com 19

20.
Want To Save A Fortune On Taxes?
Captive Insurance Company: Deducting $1,200,000 Per Year
Diagram 1: Pre-Setup
Wilmington Trust
Company
David
(or some other Delaware
Trust Company)
Grantor
David Dynasty Trustee
Trust
(Delaware –
Perpetual)
$300,000
We commonly set up
the trusts which own
David’s heirs the captives in
Nevada.
Givner & Kaye,
A Professional Corporation 20
Owen@GivnerKaye.com 20

21.
Want To Save A Fortune On Taxes?
Captive Insurance Company: Deducting $1,200,000 Per Year
Diagram 2: Set Up The Captive
David Dynasty
Trust
(Delaware –
Perpetual) The captive is exempt from
Delaware business income tax.
It is treated as one enterprise
100% owner Delaware LLC and, therefore, subject to only
(taxed as a “C” corporation for one $5,000 minimum annual
Federal income tax purposes) premium requirement. Each
$500,000 series can receive up to $1.2
million tax free under IRC
Section 831(b).
Series “A”: Series “B”:
Property & Health Plan
Casualty Risks Liabilities
Givner & Kaye,
A Professional Corporation 21
Owen@GivnerKaye.com 21

22.
Want To Save A Fortune On Taxes?
Business Captive Insurance Company: Deducting $1,200,000 Per Year
#1
Diagram 3: Operating The Captive Alternative #1
Business Delaware Business
#2 LLC #12
Business Business
#3 #11
Business Business
#4 #10
Business
Business
Business Business Business #9
#8
#5 #6 #7
Each business must pay a premium of 5% - 15% of the $1,200,000 total.
Givner & Kaye,
A Professional Corporation 22
Owen@GivnerKaye.com 22

23.
Want To Save A Fortune On Taxes?
Captive Insurance Company: Deducting $1,200,000 Per Year
Diagram 3: Operating The Captive Alternative #2
Delaware
LLC
49% of the 51% of the Captive
Operating premiums premiums Manager’s
Business Pool
Assume the captive manager re-insures 40% of the risk. Then 11% of the risk
is shared among the pool. If there are 8 members of the pool and one has a
$1,200,000 casualty, then the other 7 members lose $171,000 each.
Givner & Kaye,
A Professional Corporation 23
Owen@GivnerKaye.com 23

24.
Want To Save A Fortune On Taxes?
Captive Insurance Company: Deducting $1,200,000 Per Year
Diagram 4: Using The Captive’s Profits
Delaware
David Dynasty
LLC
Trust
(Delaware – Dividends
Perpetual)
David as
manager
LLC used to
LLC used to
buy real
buy real
estate and
estate and
other
other
investments
investments
Givner & Kaye,
A Professional Corporation 24
Owen@GivnerKaye.com 24

25.
Want To Save A Fortune On Taxes?
Charitable
Alternatives
Givner & Kaye,
A Professional Corporation 25
Owen@GivnerKaye.com 25

26.
Want To Save A Fortune On Taxes?
Grantor
Charitable Lead
Annuity Trust
Givner & Kaye,
A Professional Corporation 26
Owen@GivnerKaye.com 26

27.
Want To Save A Fortune On Taxes?
Gives $600,000 of LLC units
CLAT
Mom
$464,000 charitable deduction
8.3% per year
- $50,000 – for
10 years
Children’s trust gets what is left
at the end of the 10 year period
Children’s Charity
Trust
Givner & Kaye,
A Professional Corporation 27
Owen@GivnerKaye.com 27

28.
Want To Save A Fortune On Taxes?
Charitable Lead Annuity Trust – Alternate #1
Bunching The Deduction Up Front
October, 2011 Section 7520 rate of 1.4% (lower is better)
$1,000,000 of real estate generating $50,000 per year in an LLC
Valuation discounts of 40% make it $600,000 generating $50,000
$50,000 is an 8.333% payout on $600,000
10 Year Term, Remainder To Children
Immediate Charitable Gift of $463,542 (77.257%), which saves Mom $209,000
if in a 45% state and Federal bracket [13 year term is 98.4% gift!!]
Gift to the children’s trust of $136,459, for which a 709 must be filed
Mom is taxed on the income each year so she gives back the charitable
deduction that was bunched up front
Givner & Kaye,
A Professional Corporation 28
Owen@GivnerKaye.com 28

29.
Want To Save A Fortune On Taxes?
Charitable Lead Annuity Trust – Alternate #2
Deduction Up Front, No Taxable Income Later
October, 2011, Section 7520 rate of 1.4%
$1,000,000 of muni bonds generating $40,000 per year in an LLC
Valuation discounts of 30% make it $700,000 generating $40,000
$40,000 is a 5.7% payout (annuity) on $700,000
10 Year Term, Remainder To Children
Immediate Charitable Gift of $369,921 (53%), which saves Mom
$166,464 if in a 45% state and Federal bracket [20 years = 99% gift!!]
Gift to the children’s trust of $330,079, for which a 709 must be filed
Mom is taxed on muni bond income each year (zero)
Givner & Kaye,
A Professional Corporation 29
Owen@GivnerKaye.com 29

30.
Want To Save A Fortune On Taxes?
Doesn’t Have To Be A Gift Over To The Children – Can Come Back To Mom
Gives $1,000,000
CLAT
Mom
5% per year -
$50,000 – for
Mom gets what is 10 years
left at the end of
the 10 year
period
Charity
Givner & Kaye,
A Professional Corporation 30
Owen@GivnerKaye.com 30

31.
Want To Save A Fortune On Taxes?
Charitable
Remainder
Annuity Trust
Givner & Kaye,
A Professional Corporation 31
Owen@GivnerKaye.com 31

32.
Want To Save A Fortune On Taxes?
Charitable Remainder Annuity Trust
October, 2011 Section 7520 rate of 1.4%
But We Are Allowed To Use August’s 2.2%
(Higher interest rate is better)
(Longer retained term yields lower deduction)
$1,000,000, 10 Year Term, 5% payout to Mom
Immediate Charitable Gift of $555,535, which saves Mom $250,000 if
in a 45% state and Federal bracket
20 year term results in a $198,000 charitable deduction ($89,000 tax
savings)
Givner & Kaye,
A Professional Corporation 32
Owen@GivnerKaye.com 32

33.
Want To Save A Fortune On Taxes?
Gives $1,000,000
Mom CRAT
Charity gets what
5% per year is left at the end
- $50,000 – of the 10 year
for 10 years period
Charity
Givner & Kaye,
A Professional Corporation 33
Owen@GivnerKaye.com 33

34.
Want To Save A Fortune On Taxes?
CRAT
August Section 7520 rate of 2.2%
Mom, age 71, Retains 5% income for life
Immediate Charitable Gift of $416,710, which saves Mom $187,520 if
in a 45% state and Federal bracket
[not significantly different than the results of a 20 year term]
Note: Will Not Work For A 70 year old!!!
Givner & Kaye,
A Professional Corporation 34
Owen@GivnerKaye.com 34

35.
Want To Save A Fortune On Taxes?
Gives $1,000,000
Mom CRAT
Charity gets what
5% per year is left when mom
- $50,000 – passes away
for her life
Charity
Givner & Kaye,
A Professional Corporation 35
Owen@GivnerKaye.com 35

36.
Want To Save A Fortune On Taxes?
Charitable
Limited
Partnerships
Givner & Kaye,
A Professional Corporation 36
Owen@GivnerKaye.com 36

37.
Want To Save A Fortune On Taxes?
Donate 97% of LP interests
Mom and Dad Charity
3% GP
Limited Partnership
Contribute $1.0 of Becomes the 97% LP
appreciated
property
97% of $1.0 X 90% (to allow for 10% valuation discounts) = $873,000 charitable deduction
which saves $392,850 in income tax, but the $1,000,000 stays in the limited partnership.
Givner & Kaye,
A Professional Corporation 37
Owen@GivnerKaye.com 37

38.
Want To Save A Fortune On Taxes?
The end result is that you have a limited partnership which you control.
However, the largest limited partner is a charity. You must make a distribution of 5%
of the value of the assets each year, and 97% of that distribution will be to the
charity. You must make that distribution so that the charity realizes and reasonable
return on its investment. Beyond that, you can make appropriate investments with
the limited partnership assets, e.g., loans to your business, investments in real
estate that you like, etc.
This is an attractive way to control capital at an attractive cost, especially if
you have an interest in benefitting charity.
Givner & Kaye,
A Professional Corporation 38
Owen@GivnerKaye.com 38

39.
Want To Save A Fortune On Taxes?
Investments
Givner & Kaye,
A Professional Corporation 39
Owen@GivnerKaye.com 39

40.
Want To Save A Fortune On Taxes?
Oil
and
Gas
Givner & Kaye,
A Professional Corporation 40
Owen@GivnerKaye.com 40

41.
Want To Save A Fortune On Taxes?
EXAMPLE (adapted from Hard Rock Partners 2011-a, L.P.):
No Oil & Gas Investment Oil & Gas Investment ($50,000 investment)
Gross income $200,000 Gross income $200,000
Taxable income $200,000 IDC deduction ( 50,000)
Taxable income $150,000
State Tax 6.5% $ 11,875 State Tax 6.5% $ 8,625
Federal Tax $ 44,070 Federal Tax $ 30,070
Total Tax $ 55,945 Total Tax $38,695
Tax Savings $17,250 (34.5% of $50,000)
The cash flow often runs 10% per year for decades.
Givner & Kaye,
A Professional Corporation 41
Owen@GivnerKaye.com 41

42.
Want To Save A Fortune On Taxes?
Economics:
Gas prices are low, meaning any increase will improve investor
returns
U.S. is the Saudi Arabia of natural gas
Work with an experienced operator that has (i) drilled hundreds of
wells and (ii) excellent track record in existing developed fields
Risk diversification in multi-well programs
Return of initial investment in tax benefits and cash in 5 to 8 years
Residual income for decades
Givner & Kaye,
A Professional Corporation 42
Owen@GivnerKaye.com 42

43.
Want To Save A Fortune On Taxes?
Real Estate
Givner & Kaye,
A Professional Corporation 43
Owen@GivnerKaye.com 43

44.
Want To Save A Fortune On Taxes?
Two methods of depreciation for Commercial Properties:
Straight-line method - depreciated over 39 years.
Stipulates that an asset must be depreciated by equal amounts each year
over its useful life.
Example:
You buy a commercial shopping center for $10,000,000. The land the center
resides on is worth $4,000,000 (40%). The building is valued at $6,000,000.
Current law allows you to depreciate commercial properties by equal
amounts annually over 39 years.
$6,000,000/39 years = $153,846 annually
Or calculate by multiplying the building percentage by 2.56%.
Givner & Kaye,
A Professional Corporation 44
Owen@GivnerKaye.com 44

45.
Want To Save A Fortune On Taxes?
Accelerated Depreciation –
Same $10.0 one story Shopping Center. Reasonable Cost Segregation
allocations and related depreciation figures ($6.0 to Building, $4.0 to land):
5 year property 28% of $6,000,000 = $1,680,000
7 year property 3.5% of $6,000,000 = $ 210,000
15 year property 11.84% of $6,000,000 = $ 710,400
39 year property 56.66% of $6,000,000 = $3,399,600
Here is the resulting First Year Depreciation:
5 year property = $ 672,000
7 year property = $ 60,000
15 year property = $ 71,040
39 year property = $ 87,169
___________
Total Depreciation in year one: $890,209
Givner & Kaye,
A Professional Corporation 45
Owen@GivnerKaye.com 45

46.
Want To Save A Fortune On Taxes?
Accelerated Depreciation –
Value of building 6,000,000
Bldg.
Segregation Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Totals
5 year property 1,680,000 672,000 403,200 241,920 145,152 87,091 1,549,363
7 year property 210,000 60,000 42,857 30,612 21,866 15,618 170,954
15 year property 710,400 71,040 63,936 57,542 51,788 46,609 290,916
39 year property 3,399,600 87,169 84,934 82,756 80,634 78,567 414,061
Totals 6,000,000 890,209 594,927 412,831 299,440 227,886 $2,425,294
Givner & Kaye,
A Professional Corporation 46
Owen@GivnerKaye.com 46

47.
Want To Save A Fortune On Taxes?
Questions and Answers
Send us e-mail:
Bruce@GivnerKaye.com
Owen@GivnerKaye.com
Kathy@GivnerKaye.com
Givner & Kaye,
A Professional Corporation 47
Owen@GivnerKaye.com 47