Successful Entrepreneur and Wife
Mid 70s Winding Down Business. No Liquidity or Life Insurance HNW Grandparents, Mid 80s. Financially Conservative. Not Aware of Huge Estate Tax Liability
SITUATION: Bob and Carol are in their mid-70s. They have two grown children and two grandchildren and a net worth of about $35 million. Bob has a successful $20 million business that he has been selling off to partners in stages each year But, he still has $4 million left to sell. In addition to the business, the couple has real estate, investments and $3.5 million in his Bob’s IRA–fund he will never need for his lifestyle. The family has no life insurance and their net worth is very illiquid.
- couple’s estate. This reduced the tax hit to $450,000 instead of $1.4 million.
- We helped the couple make a $4 million gift to an IGNĪT PLAN ™ saving $2.1 million of income tax. Income to children and grandchildren for their lifetimes and $17 million ultimate gift to charity.
- We created an LLC for the couple and transferred $9 million of assets into it. Sold the LLC to a family trust for a note and moved all future growth out of the couple’s estate.
RESULT: Children and grandchildren receive $20 million more. Charity gets $17 million. IRS will get between $0 and -$3 million
Mid 80s. Financially Conservative. Not Aware of Huge Estate Tax Liability
SITUATION: Ted and Alice are both in their mid-80s. Ted has built a significant stock portfolio with his buy and hold philosophy. The couple has four children and six grandchildren who are all unaware of the family’s significant wealth. Ted and Alice enjoy a modest lifestyle and because of this, they keep accumulating assets to the tune of $45 million. Despite being wealthier than 99 percent of Americans, Ted and Alice don’t even have simple wills. Ted claims he doesn’t know how estate planning works or that his family will face substantial estate taxes when he and Alice pass unless immediate remedial action is taken. Since Ted and Alice are very unsophisticated, planning has been very challenging.
- We have implemented revocable living trusts and other foundational documents.
- We transferred $10 million to an IGNĪT PLAN ™ that will leave income for the couple’s four children and six grandchildren. Ted has not sold the stock yet, but he has already saved $100,000 of income tax and he has five more years of carryforwards left.
RESULT: We also got most of the $10 million out of the couple’s estate which will save the family close to $4 million. There’s more to do but we’re taking it slowly.
Wealthy 58 Year-Old
Widower to Remarry Soon. Needs Cash, but Most of Net Worth in Retirement Plan
SITUATION: Frank is a recently retired 58-year-old widower. Most of Frank’s $12 million net worth is wrapped up in his retirement plan. As a result, he faces both income and estate tax issues since he must make IRA withdrawals in order to live. Frank has three children and two young grandchildren–and he is considering getting remarried soon. While Frank doesn’t live lavishly, he still requires a large amount of cash to net what he needs.
- We created an LLC to own Frank’s two small investment properties. Frank will function as the manager of the LLC.
- We helped Frank’s LLC create a profit-sharing plan enabling Frank to roll his IRA into the profit-sharing plan. The profit-sharing plan buys an insurance policy, which pays annual premiums for six years and consumes most of Franks’ funds.
- After the sixth premium is paid, we distribute the policy to Frank and Frank pays the taxes with a loan from the policy. We have set aside enough money for Frank to live on while the policy grows and recovers from the distribution for taxes. Then, at the end of the ninth year Frank takes policy loans which are income-tax free.
RESULT: We have reduced a $5 million tax liability into a tax of just $2 million and Frank has escaped the uncertainty of future changes to the tax law. Even better, he’ll never pay income tax again on the money in the policy, thus giving him over $500,000 a year to live on.