CASE STUDIES

Summary

Case of the Charitably-Minded Elderly Couple

An elderly couple was living very modestly, not spending all of their income. They were gifting to charity more than they could deduct each year. They realized that their largest asset was going to cost their children more than seventy percent (70%) in taxes upon their deaths. They were concerned that the government would reduce what was available to their children and favored charities. They asked us to help design a plan that would maximize gifts and bequests to each, while guaranteeing them with enough to live out the rest of their lives.

Case of the Highly-Appreciated, Concentrated Stock Position

The senior generation of a family had inherited many years ago a large position in a single company. That company prospered, and the stock grew many-fold. The senior generation wanted to increase their current cash flow for living expenses, yet did not want to sell this stock due to the highly-appreciated value, and reduction due to income taxes. We designed a plan whereby the senior generation could exchange the stock for periodic income to supplement their living expenses, while the younger generation realized an opportunity to diversify the holdings.

Case of the Young, Urban-Professional, High-Income Family

A successful professional had not taken the time to do much planning, only stop-gap measures. The family wanted to secure all of their assets should something happen to the income-earner in the next ten years. They were also concerned about asset protection and management succession of the family assets. We helped them achieve all of their stated objectives, and implemented a plan that provided continued income to successive generations and placed the necessary defenses to ensure financial peace of mind.

Case of the Charitably-Minded Elderly Couple
An elderly couple with very modest living expenses wanted to develop a plan for themselves that would enable each of their two children to inherit forty percent (40%) of their total wealth at the death of the survivor (the remaining twenty percent (20%) going to selected charities), but ONLY after the couple enjoyed their retirement years. Besides a personal residence, the couple had a modest inheritance from the wife’s parents, and a 401(k) with the husband’s long-time employer. The husband began the Required Minimum Distributions several years ago; however, the amount of distributions are in excess of their modest needs.

We assisted him with transferring a lump sum (equal to 20% of their net worth) from the 401(k) into a contract that guaranteed a death benefit to the surviving spouse, then the charity, that will be the greatest of: 1) an annual increase of seven percent (7%) until the original account value tripled, 2) a quarterly ratchet (“high water mark”) of the account value through age 90, or 3) the account value. We suggested they arrange a restricted beneficiary designation with the surviving spouse as the primary beneficiary and the selected charities as contingent beneficiaries.

The results achieved are as follows:

Effectively removed an ordinary-income asset from their taxable and probate estate;
Guaranteed their selected charities receive the maximum value available;
Funds invested in the contract are secure from the claims of creditors; and
If needed, funds still available to the couple for living expenses and excessive medical costs.

Case of the Highly-Appreciated, Concentrated Stock Position
A very successful family requested we develop a plan to transfer a large position in a highly-appreciated, single-company stock to the next generation without incurring excessive income or transfer taxes and diversify the portfolio.

After thoroughly analyzing their situation, we recommended transferring the stock to a Family Limited Partnership with the senior generation as the Limited Partners. They subsequently sold their LP interests to the next generation for an installment note. The second generation immediately sold the stock and diversified the portfolio. No income taxes were due on the sale of stock owned by the FLP if they filed an IRC Section 743 election to adjust the basis of the stock to the price of the purchased partnership interest. The senior generation will recognize capital gains and interest income on collections of the installment note; and, of course, this note will be included in their estate if not collected before.

This planning effected the concentrated stock position to be diversified without immediate income and transfer tax consequences. Additionally, the senior generation is receiving higher cash flow via payments on the installment note.

Case of the Young, Urban-Professional, High-Income Family
A highly-respected, young professional requested we help him with “getting a handle on things.” We met to discuss his situation. His estate comprised a personal residence, with a mortgage, a family farm, some securities, an IRA and assets that produced a substantial income each year. After our analysis of his will, tax returns, and investment statements, we made recommendations that would accomplish the following:

Divide their estates into testamentary trusts that would guarantee the lowest transfer taxes possible;
Guarantee these trusts would not subject to the either estate taxes or the claims of creditors during their children’s or grandchildren’s lifetimes;
Provide for the management of all financial assets by the senior generation, yet be able to fund education, home purchases, and establishment of a business or profession for the children and grandchildren; and
Provide the liquidity needed to be sure the surviving spouse could maintain the standard of living to which she had become accustomed, and remove assets from the claims of creditors, including future spouses.