Page 51 - MetalForming May 2011

protection device. Then we transfer the real estate LLC interest and the other assets to a family limited part- nership (FLIP). For example, consider Jake (married to Sue), who transfers $11 million of such assets to his FLIP. The discounts (about 30 percent) under current law make the assets transferred worth only about $7.7 mil- lion for tax purposes.
Jake and Sue then gift the limited partnership units (cannot vote), which own 99 percent of the FLIP, to their kids. Jake and Sue retain all of the vot- ing units (1 percent) of the FLIP and keep absolute control of the assets transferred.
If Jake needs or wants to use the funds inside the FLIP, the FLIP loans the funds to Jake. He may pay back the loan, or die owing it, which would reduce his taxable estate dollar for dollar.
Note: Instead of transferring the assets to a FLIP, an IDT or other irrev- ocable trust might be used, depending on the exact facts and circumstances.
You Want To Create Additional Wealth Without Risk
This strategy has a number of vari- ations, all legally taking advantage of the tax law and the favorable econom- ic possibilities if you (or your spouse, or both) are insurable for life insurance.
For example, consider Jim and his wife Jane, both 70 yr. old and with a large portfolio of conservative cash-like assets—stocks, bonds, municipals, CD, etc.—which they will never need to main- tain their lifestyle. However, Jim hates that the IRS will get 35 percent or more in estate taxes when he and Jane die.
Strategy 1: Jim and Jane gift $6 mil- lion to a FLIP, which purchases $21 million of second-to-die life insurance on Jim and Jane. The FLIP limited part- nership interests are gifted to their kids (valued at $4.2 million for tax purpos- es). Result: The $6 million leaves their estate, so when Jim and Jane go to heaven, the kids receive $21 million tax-free.
Strategy 2: Same facts as above, except this time the $6 million gift goes to a family foundation created by Jim
and Jane. The foundation purchases the $21 million in life insurance, which Jim and Jane leave to their alma mater. This saves Jim and Jane about $2.1 million in federal and state income taxes due to the $6 million contribu- tion to their foundation. They’ll use the income from the $2.1 million (and principal, if necessary) to buy $8 mil- lion of life insurance in an irrevocable life-insurance trust. Result: The foun-
dation receives $21 million, tax-free; the family keeps $8 million, or more— $6 million, tax-free.
Tick Tock
The clock is ticking. By the time you read this, you will have little more than a year to take advantage of the new law. What are you waiting for?
Any questions or concerns? Call me: 847/674-5295. MF
Blackman on Taxes
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