D is our hero. D has about $100,000,000 in assets. D has private equity interests, both volatile
Question:
D is our hero. D has about $100,000,000 in assets. D has private equity interests, both volatile and “safe” stocks, muni bonds and cash in D’s portfolio. D expects the Private equity interest to grow at about 30%, but realizes it might go to 0 as well. The volatile stocks are expected to grow at a 20% annual rate, but could also go down in value by 20%. The safe stocks could grow or decrease at a 10% annual rate and the muni bonds are certain to grow at 7%. The cash will grow at 1%. D would like to try to get assets out of D’s estate, without paying any gift tax (or as little as possible). D has been thinking about a GRAT for this purpose and is willing to put $10,000,000 of D’s assets in the GRAT. Assume the interest rate is 10% annually.
1. Briefly explain the structure of the GRAT you would use. I.e. duration, Annuity Amount, what assets you would recommend putting into the GRAT and why.
2. What would be the gift / estate tax consequence / benefit if D created a 3-year GRAT funded with volatile stocks (that grew 20% per year, net of tax) and the annuity amount was $3,000,000 payable at the end of each year (i.e. in Year 1 of 3 the trust would earn $2,000,000 (to $12,000,000) and then there would be a $3,000,000 payment. In Year 2, the GRAT would earn $1,800,000 (to $10,800,000) and then pay the $3,000,000 payment (to $7,800,000) and in Year 3 the trust would earn $1,560,000 to $9,360,000, before the final payment of $3,000,000)?rn
Mergers, Acquisitions, and Other Restructuring Activities An Integrated Approach to Process, Tools,
ISBN: 978-0123854858
6th Edition
Authors: Donald m. depamphilis