Law Offices of Givner & Kaye Newsletter | February Issue 


 

         Most people will not spend a penny today to put a hurdle between their valuable assets and some currently unknown, but possible, future creditor*.  So what happens is people come to us when there is already a problem.  In those cases it is like trying to sell a fire insurance policy to someone whose home is already on fire: it just doesn't do any good.  (Transfers made once there is a problem are likely going to be viewed as "fraudulent transfers.)

 

          California is not usually viewed as a debtor-friendly state, especially compared to Nevada.  However, in one respect California is one of the very best states for creditor protection planning. 

 

          A closely held business can adopt a private retirement plan ("PRP").  This is not a tax qualified retirement plan, meaning the deductions to a PRP are not deductible and the assets in the private retirement trust ("PRT") do not earn money on a tax deferred basis.  However, the PRP need not cover the rank and file employees (it can be completely discriminatory).  Also, the PRP can create a funding obligation for your retirement that is quite large.  The closely held business is unlikely to be able to fund that liability immediately.  As a result, the PRT trustee can put a lien on the business's assets as security to fund the retirement obligation.  That lien, if properly aged, can be a hurdle between the valuable assets of the business and some future plaintiff.  If the business lacks sufficient assets, you may be able to make a voluntary contribution. 

 

          This is a complex structure.  However, it has significant potential benefits in the right situations.  If you think this might be of benefit, please give us a call.

 

          Best regards,

 

                    Bruce Givner

                    Owen Kaye

                    Kathleen Givner

                    Neda Barkhordar

 

*The phrase `future creditor' is misleading.  You need not be sued to have a claim pending against you.  If you have signed a personal guaranty, it is already too late to do the planning.  If you have been in a car crash that was your fault, there is a `claim' so it may be too late to do the planning.

Featured Article: Terminated QPRTs Result In Interesting Opportunities

         Over the past almost four decades we have helped hundreds of families implement qualified personal residence trusts.  The purpose of a QPRT, as originally designed by Congress, was to allow the parents to pass the equity in the residence to the next generation at a low gift tax cost.  In many situations QPRTs have been created because they are terrific structures to put a hurdle between that valuable equity and some future plaintiff.

 

          Once the QPRT ends, the residence is transferred to an irrevocable trust for the benefit of the children.  (Other law firms sometimes have the residence transferred outright to the children, a result we do not like since it is easier for the parents to control a trust for the children than it is for them to control the children.  Also, a trust for the children provides creditor protection for the children.) 

 

          One problem is that the children's trust has the same low basis in the residence that the parents had.  Wouldn't it be nice if the parents could buy the home from the children's trust so that, upon the first parent's death, the home would receive a "step-up" in basis to the date of death fair market value?  As a result, the children would get the best of both worlds: estate tax exclusion of the value of the residence and a high (date of death) basis for a future sale.

 

          Unfortunately, the IRS Regulations require the QPRT and any resulting trust to contain a provision prohibiting the parents from buying the home from a grantor trust (a trust which is disregarded for income tax purposes).  Buying the home from a non-grantor trust would be an income tax disaster. 

 

          If you are interested in pursuing this planning (both estate tax exclusion and an increased basis), please contact us today. We have an interesting alternative for you to consider. 

YouTube Videos
What is a QPRT (Qualified Personal Residence Trust)?
We post new videos on YouTube each week filled with advice and tips. For more, click here.
Attorney Spotlight: Upcoming Engagements

On January 23 we had a Bourbon Tasting Event.  Attendance was capped at 25, all of whom had a wonderful time (click to see photos).  We are considering a followup event: Tequila Tasting.  One of the best Tequilas is one which bears George Clooney's signature on the label.


  On February 12 Bruce Givner will be speaking on "International Estate Planning" to the South Bay Estate Planning Council in Torrance at 7 a.m.

 

On February 24 Bruce Givner will be conducting a national webinar on "Retirement Benefits in The Non-Taxable Estate" at 10 a.m. Pacific for Strafford Publications. 


 On February 26 Bruce Givner will be speaking on The Intersection of Theoretically Prophylactic Asset Protection Planning and a Competent Litigator for "The Gathering 2015" at the San Diego Marriott Del Mar.


 On May 4, Bruce Givner will be speaking at the CalCPA Pasadena Discussion Group on the subject of Tax Planning For The Sale Of Real Estate Or A Business: Planning Two+ Years In Advance Is Best.

Tax Tip of the Month

Assume there is a discussion that your business might be sold in the near future.  That is the time to consider estate tax planning.  Why?  Because it may be possible to transfer the difference between today's value and the transaction price to a trust for your children without gift tax.  Consider this recent transaction.

 

Our client owned a percentage of a healthcare company.  The client's percentage was appraised at $40,000,000.  The client transferred the stock to a 2 year grantor retained annuity trust (GRAT), retaining the right to an annuity of 51.6556% per year.  As a result of that high annuity, the gift over to the children was about one dollar.  In year 1 the stock was sold for almost $150,000,000.  At the end of the second year the enter $40,000,000 will have been paid back to the parents.  However, the other $110,000,000 will have been transferred - free of gift tax - to an irrevocable trust for the benefit of the children. 

 


Bruce Givner & Owen Kaye
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Upcoming Thursday Insights Series Seminar:  
 
"C" Corporation Asset Sale? Martin Ice Cream and 
Bross: Personal Goodwill to Reduce the "Double" Tax with Bruce Givner, Esq. 

In the famous Martin Ice Cream case, Mr. Strassberg argued that the goodwill was owned by him personally.  As a result, a great deal of the purchase price paid by Haagen Dazs was paid to him and was not subject to the "double tax" which would have been the case had it been paid to the "C" corporation.  The IRS did not like that result, and many people have considered it to be an outlier.  However, 3 relatively recent cases prove that it is, indeed, the law.  So the important point is to get clients in to us for planning years before a sale occurs so that the goodwill can be properly documented as belonging to the shareholder.
 
February 19
2:30pm-4pm

Join us in the office or online via webinar, where you can watch the folks in the room listen to and question Bruce.  

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For almost four decades, our experienced Los Angeles estate planning, asset protection and expert tax attorneys have met each client's unique planning needs by collaborating with our longtime partners - attorneys, accountants, business managers, financial planners, stockbrokers and insurance professionals. Contact Givner & Kaye today!

Givner & Kaye, A Professional Corporation | bruce@givnerkaye.com 
www.GivnerKaye.com
12100 Wilshire Blvd.
Suite 445
Los Angeles, CA 90025