Thursday, January 24, 2013
If a couple who owns a large estate, estimated at $20 million, in publicly traded securities and income-producing real estate would like to bequeath their estates to their children without incurring a large estate tax and provide some of their estate to a charity of their choice, they might want to consider establishing a LLC. Once established the couple could transfer $6 million of their publicly traded securities and income producing real estate to the LLC in exchange for LLC units. In this instance, a cautious appraiser might only value LLC at $4.2 million. The couple might want to keep the remainder of their stock as liquidity. The couple might then want to transfer most (about 99%) of their LLC units to a CLAT (Charitable Lead Annuity Trust). An advisor would probably recommend that the couple take "a 6.01% payout rate and 25-year term of the CLAT."Under these circumstances, the couple would be able to claim 100% of their transfer-tax charitable deduction.
The CLAT would provide $252,420 a year to the charity of the couple's choice. "Because of the discount to the initial value, the underlying LLC portfolio will only need to generate a 4.207% annual return to satisfy the charitable distribution." The LLC should provide enough funds to the CLAT's annuity payments. Following the end of CLAT's term, the CLAT then distributes the remaining LLC units to couple's heirs.
See Gift of LLC Units, Charitable Planning, Jan. 19, 2013.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.