Multilevel, Sophisticated Estate Planning for a Wealthy Client and His Family
An elderly client needed assistance developing a strategy for a family limited partnership funded with marketable securities. The client implemented a gifting program, giving partnership units to his children and valuing these gifts at a discount as non-marketable minority interests.The Quarles & Brady team assisted the client in the proper management of the partnership during his lifetime—so well that the client's estate tax return was accepted without audit—and upon his death, his son (also a client) used the partnership units to fund a Grantor Retained Annuity Trust (GRAT). At the conclusion of the GRAT, the partnership units will be distributed to the son's children at a substantial discount and without additional transfer tax.
Reformation of a Trust for a Disabled Beneficiary
Quarles & Brady assisted a client in removing his elderly, non-responsive brother as co-trustee in a trust previously established for our client's disabled son and in substituting the son and bank as new co-trustees. The brother refused to resign and avoided being contacted so as to not receive legal notice of the impending changes. We hired a private investigator to help us notify the brother of the change in trustee designation, and the court granted a petition to modify the irrevocable trust so that our client's wishes could be carried out.
Community Property Planning for a Transient Client
A new client with significant assets contacted us to update his estate plan. The client was originally from Michigan, but he spent many years domiciled in Texas before residing overseas for several years and ultimately moving to Florida. Because Texas is a common property state, complications arose when we realized that our client's estate plan made no provisions for his community property. We assisted him in identifying which of his property could be considered community property and then established a trust fund to hold the property. This kept him from losing out on any tax benefits the community property would bring him. Unfortunately the client died, but the IRS accepted the community property classification, which saved the widow hundreds of thousands of dollars in capital gains tax.
Multifaceted Planning with Grantor Retained Annuity Trusts (GRATs) Holding Concentrated Asset Positions, and a Charitable Lead Trust (CLT) in a Low-Interest Rate Environment
A very successful client with a net worth of approximately $250 million was interested in planning that would allow him to transfer assets to his family without using his lifetime exemption. The Quarles team illustrated a variety of grantor retained annuity trust (GRAT) alternatives, including funding multiple GRATs with concentrated stock positions. Ultimately, the client established eight such GRATs that were funded with stock in different industries, thereby reducing the risk of dilution of GRAT performance due to underperformance of any one position. As the GRAT payments are made, the client rolls them into another GRAT, with the result of passing millions of dollars to his children without paying any gift tax or using his exemption. We illustrated for the client the benefits of creating a charitable lead trust in a low-interest environment to accomplish his desire to benefit his university over a term of years, with substantial value ultimately passing to his family.
Advanced Planning with Family Business Entities
Our client was a widow who inherited interests in several closely held family businesses, which had been valued in the spouse's estate at a substantial discount. She also owned interests in some of these same entities and subsequent to the receipt of a closing letter for the husband's estate, the widow gifted a portion of her interests to her children, taking a minority discount. She then sold the remaining interests she had received from her husband to her children at the appraised fair market value—all interests being valued as minority interests—and the family subsequently realized substantial value when certain entity assets were sold years later at premium values (in excess of $10 million). They created a family limited partnership in which she transferred her remaining interests and which served to streamline the management and administration of the various business entities as well as address other property management and creditor protection concerns. When our client passed, she owned a non-marketable minority interest in the partnership, which was included in her estate and valued accordingly. Her estate was audited, and the net result was millions of dollars passed to the next generation at a much lower cost due to the valuations accepted by owning the interests in a partnership.
Qualified Personal Residence Trusts for Younger Clients
A couple in their 50s, with assets of about $20 million, contacted us with a desire to transfer value to their children in a tax-efficient manner. After reviewing various options, the clients each created a Qualified Personal Residence Trust (QPRT) and then transferred one-half of their principal residence into the wife's QPRT, and one-half into the husband's QPRT, thereby reducing the risks that would come with a premature death of either spouse. The value of the residence was discounted on funding of the QPRTs by about 15 percent, due to the fractional interest being contributed to each. The family will save in excess of $1 million if both spouses survive the term of the QPRTs.
Annual Gift Program and Post-Mortem Planning Including Prior Tax Credit
An existing husband-and-wife client contacted us about methods to reduce the value of their taxable estates. Our team discussed the benefits of having the property appraised and gifting fractional interests in the property to their sole heir, their son, which they did over a period of years, which substantially reduced the value of the property in their estates at the time of their deaths. When the wife died after an illness and her husband unexpectedly died a few months later, we extended filing the wife's federal estate tax return, paying with the extension an amount calculated to maximize the use of the prior tax credit in the husband's estate. This strategy resulted in a tax savings to the son of approximately $500,000, which was in addition to the tax benefits resulting from the minority interest valuation available for the balance of the real estate that was the subject of the gift program.
Post-Death Planning to Maximize Utilization of Exemption and Effect Dispositive Intent
New clients contacted us about updating their estate plan—they were elderly, and the husband had been diagnosed with early stages of Alzheimer’s Disease. The couple did not have any children, so under their estate-planning documents, they were leaving their assets, after a life estate for the survivor of them, to their respective extended families. At the time of the initial meeting, substantially all their assets were owned jointly; then, approximately a week after the initial conference, and before any planning was implemented, the husband committed suicide. The team discussed with the wife her right to disclaim some of the joint assets, in order to utilize a portion of her husband's applicable exclusion and also to cause a portion of their assets to pass ultimately to her husband’s family under his documents. We prepared different scenarios, illustrating the ultimate tax payable and ultimate distributions to family members if the wife disclaimed portions or all of her husband's interest in their joint property. The widow then chose to disclaim, and the husband's desires to benefit his family were accomplished.
Complex Florida Homestead Planning
A Quarles & Brady client (an unmarried Florida resident) with a terminal condition and only months left to live disclosed that he had fathered a child out of wedlock and that the child was still a minor. Through a series of court proceedings and agreements with the child’s mother, our client had accepted financial responsibility for the child. Our client also had two adult children, who were sole beneficiaries of his estate plan. As our client had long since qualified his primary residence for the homestead protection afforded under Florida law, his death would result in the property being divided into equal shares for each of his children (because of the existence of the minor child). With the property valued at approximately $2 million, this would defeat our client's current estate planning objectives. Our team prepared a new Florida limited liability company to own and manage the property, and he transferred his primary residence to the new LLC, which eliminated the property's qualification as a homestead. The client was able to leave the home (through the LLC) to his two grown children and to leave a bequest to his minor child in excess of his court-mandated obligation.