InKnowVision January 2014 HNW Technical PPT - GDOTs
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In this webcast we will look at two private business owner clients who followed our recommendation to recap their company stock and sell to a GDOT (defective trust). Then promptly asked, "How do we decide how much stock should we sell/gift to our new trust?" Cash flow, income tax, long term comfort are all issues that come into play. We will discuss our custom methodology for helping these successful business owners make the right choice.
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InKnowVision January 2014 HNW Technical PPT - GDOTs
- 1. GDOTs Grantor Deemed Owned Trusts SCOTT HAMILTON, CEO INKNOWVISION, LLC WWW.INKNOWVISION.COM 630-596-5090 X80 Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 2. Grantor Deemed Owned Trusts Overview Benefits Issues Technical How they are used Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 3. Typical Scenario Goal: pass assets to heirs Client’s Estate Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 4. Typical Scenario We add an intermediate entity to serve valid business purposes. Client’s Estate LLC or FLP Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 5. Valid Business Purposes Protect your family’s future Saving gift taxes Asset protection Centralized management Flexible business planning Make family loans easier Maintain privacy Facilitate annual gifting Restrict non-partners from ownership Dead Hand Control Reduce estate taxes Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 6. Typical Scenario We add a GDOT Client’s Estate LLC or FLP GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 7. Typical Scenario The Client funds the entity and receives membership interests in return Client’s Estate LLC or FLP GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 8. Typical Scenario The Client sells membership interests to GDOT Client’s Estate LLC or FLP Units GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 9. Typical Scenario The Client sells membership interests to GDOT for FMV consideration Client’s Estate Cash/Notes/Other Assets of equal value LLC or FLP GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 10. Variation on a 2011 Theme The Client gifts membership interests to GDOT and uses exemption Client’s Estate Outright Gift LLC or FLP GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 11. Typical Scenario The LLC makes distributions to the GDOT Client’s Estate LLC or FLP Income Distributions GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 12. Typical Scenario The GDOT makes payments on the notes Client’s Estate Promissory Note Payments LLC or FLP GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 13. Typical Scenario Net Equity/Appreciation Goes to beneficiaries Client’s Estate LLC or FLP Net Equity/Appreciation GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 14. GDOT-BENEFITS Grantor pays taxes on income of GDOT Grantor pays taxes on income of GDOT Allows income tax free transactions between grantor & GDOT GDOT is a qualified S corporation shareholder/LLC Member Overcome Transfer-For-Value Rules - Old ILIT to New Appreciation out of estate Insurance Funding Application Distributions can fund beneficiary’s inheritance Distributions can fund charitable giving Asset Protection Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 15. BENEFITS Grantor pays taxes on income of GDOT LLC or FLP Taxable Income Grantor K-1 to GDOT Taxable income attributed to Grantor GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 16. BENEFITS Grantor pays taxes on income of GDOT Grantor LLC or FLP GDOT Additional Gift Equal to Taxes Paid Tax Free Build Up Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 17. BENEFITS Allows income tax free transactions between grantor & GDOT Grantor LLC or FLP Low or High Basis Units No Gain or Loss Recognized • Sale of Units • Transfer of Units • Interest payments on notes Copyright 2011, InKnowVision, LLC and Scott Hamilton GDOT Children Grandchildren Other Loved Ones 7/27/2011
- 18. BENEFITS GDOT is a qualified S corporation shareholder/LLC Member Grantor LLC /CORP S Election GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 19. BENEFITS Overcome Transfer-For-Value Problem - Old ILIT to New LLC /CORP Grantor Old ILIT Insured=Grantor Transfer for value exception “Transfer to the Insured” Copyright 2011, InKnowVision, LLC and Scott Hamilton S Election Sale of policy GDOT Children Grandchildren Other Loved Ones 7/27/2011
- 20. BENEFITS Appreciation of assets should be on the other side of the tax wall Grantor LLC or FLP T a x W a l l Appreciation happens on the other side of the tax wall GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 21. ISSUE Caution: 2036 can create a hole in the wall! Grantor 2036 T a x W a l l LLC or FLP GDOT Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 22. BENEFITS Insurance Funding Application Grantor Distributions from LLC can fund premium payments LLC /CORP S Election GDOT Owns Life Insurance Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 23. BENEFITS Early Inheritance Grantor LLC /CORP S Election GDOT Distributions from LLC can fund inheritance or make loans Owns Life Insurance Children Grandchildren Other Loved Ones Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 24. BENEFITS Charitable Giving LLC /CORP Grantor S Election Tax Deduction Distributions from LLC can fund charitable giving GDOT Owns Life Insurance Charities of Choice Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 25. BENEFITS Asset Protection Grantor Grantor’s creditors should not be able to pierce protection wall Copyright 2011, InKnowVision, LLC and Scott Hamilton P r o t e c t i o n LLC or FLP GDOT Children Grandchildren Other Loved Ones 7/27/2011
- 26. ISSUE Caution: Promissory Note May Not Be Protected Grantor Creditor’s may be able to get note and payments Copyright 2011, InKnowVision, LLC and Scott Hamilton P r o Note t e c t i o n LLC or FLP GDOT Children Grandchildren Other Loved Ones 7/27/2011
- 27. GDOT-ISSUES Phantom income drives grantor to the poor house Grantor gives away future upside Grantor loses free use of assets Irrevocable Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 28. GDOT-ISSUES Phantom income drives grantor to the poor house Software valued at $1M Grantors cash on hand = $5M Grantors other (illiquid) assets = $20M Plan-transfer software to GDOT 5 years later software valued at $20M and sold Capital Gains taxes = $4M All taxed to grantor Cash on hand to pay taxes = $1M Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 29. GDOT-ISSUES Grantor gives away future upside and use of asset Software valued at $1M Plan-transfer software to GDOT 5 years later software valued at $20M and sold All proceeds owned by GDOT Use of proceeds controlled by GDOT Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 30. GDOT-ISSUES GDOT is an irrevocable trust Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 31. GDOT-NEXT SESSION Solutions to issues Drill down on the formation issues Creating “Grantor” trust status Choice of trustees Choice of beneficiaries Trust Protector Coverage Reporting Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 32. GDOT-NEXT SESSION Solutions to issues Drill down on the formation issues Creating “Grantor” trust status Choice of trustees Choice of beneficiaries Trust Protector Coverage Reporting Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 33. Issues Phantom income drives grantor to the poor house Revoke Grantor Status Return asset to grantor Prepay note exchange Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 34. Issues Grantor gives away future upside Keep part of asset Sell/gift the other part Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 35. Issues Grantor loses free use of assets If free control-use entity planning If needed for lifestyle-poor planning Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 36. Issues Irrevocable Trustees – of you can’t trust them, who can you trust? Trust protector Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 37. Creating “Grantor” trust status IRC § 675(4)(C) Someone holds a non-fiduciary right to reacquire the trust corpus by substituting other property of equivalent value Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 38. Creating “Grantor” trust status IRC § 675(2) Any non-adverse party can enable the grantor to borrow trust corpus for income without adequate interest or without adequate security, Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 39. Creating “Grantor” trust status IRC § 674 A non-adverse party has the power to add a beneficiary, other than after-born or after-adopted children Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 40. Creating “Grantor” trust status IRC § 677(a) The income of the trust may be used to pay premiums on a policy of insurance on the grantor's life or that of the grantor's spouse. Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 41. Choice of Trustees CPAs Attorneys Trust Companies Friends Relatives Beneficiaries Grantor’s spouse Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 42. Choice of Beneficiaries Spouse Children Grandchildren Dynasty Provisions Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 43. Trust Protector What is a trust protector Duties-usually none Powers Simple Complex Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 44. Coverage History Current thinking Old and cold 10% or more Guaranties Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 45. Reporting Separate return vs Statement Reporting Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011
- 46. Putting The Tools To Work GST Planning Family Bank Divorce Protection Income Tax Neutral Special Needs Planning Incentive Provisions Funding Other Trusts Charitable Flexibility Business Transfer Asset Protection Supercharge Life Insurance Copyright 2011, InKnowVision, LLC and Scott Hamilton 7/27/2011