Good and Bad News
On Dec. 17, 2010, the president signed the 2010 Tax Relief Act after cutting a deal with Congress.
- Step #1. Recapitalize Success Co. so Joe now has non-voting stock (say 10,000 shares) and voting stock (say 100 shares). This is a tax-free transaction.
- Step #2. Joe gifts the non-voting shares to an intentionally defective trust (IDT) with Sam as the beneficiary. Note that under the current law, Success Co. is worth only about $7.2 million (the actual gift tax amount) because of tax-purpose discounts.
- Step #1. Put real estate in a limited liability company (LLC) as an asset protection device.
- Step #2. Transfer the real estate LLC interest and the other assets to a family limited partnership (FLIP). For example: Jake (married to Sue) transfers $11 million of such assets to his FLIP. The discounts under current law make the transferred assets worth $7.7 million for tax purposes.
- Step #3. Jake and Sue give the non-voting limited partnership units, which own 99 percent of the FLIP, to their kids. Jake and Sue retain all the voting units (1 percent) of the FLIP and keep absolute control of the assets transferred.
tax law.
- Strategy #1. Jim and Jane gift $6 million to a FLIP, which purchases $21 million of second-to-
die life insurance on Jim and Jane. The FLIP
limited partnership interests are gifted to their kids ($4.2 million for tax purposes). This results in taking
$6 million out of their estate. When Jim and Jane go to heaven, the kids will get $21 million tax-free. - Strategy #2. This time the $6 million gift goes to the family foundation created by Jim and Jane. The foundation purchases the $21 million in life insurance, which Jim and Jane want to go to their alma mater.
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