InKnowVision
Case Study Email
02.19.09
Composed by: Sheila Hart

Craig and Donna Perkins

Profile:

Both individuals are 56 years old.
They have two unmarried, adult children.
They are currently worth a little more than $30 million.
They want to leave each child the equivalent of about $8 million.
They are very charitable and would like to leave about 30% of estate to charity.
Craig is an executive at a large company and is considering retirement within three years.

Current Situation:
According to the calculations that we performed in the Family Wealth Diagnostic, their current planning leaves no charitable gift and includes about $17 million of estate tax if they both die this year. If they live to life expectancy, estate taxes grow to $70 million.

InKnowVision Solution:
As we began to create the Family Wealth Goal Achiever to help Craig and Donna accomplish their goals, we utilized several strategies to make certain that their cash flow needs would be met as well as their goals for inheritance to children and to charity.

1. A new Family Limited Partnership (FLP) was established so that we could transfer $6 million of assets in exchange for the limited and general partner interests. They have their LP interests appraised by a qualified appraiser to establish a value for each LP interest.
2. Grantor Deemed Owned Trusts (GDOTs) were established for both Craig and Donna, where each person will make a gift to their GDOT and then sell their LP interests to their individual GDOT in exchange for an interest only note that will pay them a little over $120,000 per year.
3. The GDOTs will apply for a guaranteed survivorship life insurance policy in the amount of $20 million. There will be a first year premium of $650,000 and then no premium will be needed for 19 years. Premiums then resume at $740,000 per year.
4. Two Qualified Personal Residence Trusts (QPRTs) were established for both Craig and Donna, defined by 20-year terms. At the end of the term, Craig and Donna will no longer own their residence but will have the ability to rent it form the QPRTs' trustee. The rent will coincide with the need for additional life insurance premiums which can be paid from the QPRTs to the GDOTs, free of income or gift tax.
5. With one highly appreciated asset that Craig and Donna would like to sell in order to get a little better diversification, a Charitable Remainder Unitrust (CRUT) is established so that the stock could be transferred to the CRUT. This will provide a charitable income tax deduction of about $200,000 and will also produce income for Craig and Donna of a little more than $165,000 per year. When the last of them dies, the remainder of the CRUT will transfer to charity.
6. Craig names charity as the beneficiary of his IRA and we also established a Testamentary Charitable Lead Annuity Trust (TCLAT) which will take any assets that would be taxable in their estate and transfer them to a trust that would pay to charity for a period of years and then transfer the balance to their children at the end of that period. This will effectively eliminate any estate tax.

Final Results:
The InKnowVision plan, created through the use of the Family Wealth Diagnostic and Family Wealth Goal Achiever, accomplished more than was asked for by Craig and Donna. Through careful cash flow modeling, Craig can retire in three years and their goals for children, charity, taxes and liquidity have all been met.

For more valuable case study presentations:
Join us on the third Wednesday of each month for a free, one-hour session, where we plan for the goals and objectives of one of many cases on which we have collaborated.

If you have a client you would like to discuss, call Kim Hamilton at 888-807-5958 ext 83 or email kim@inknowvision.com.

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