Multiple Asset Accounts

Purposes:

1. To minimize tax obligation
2. To maximize wealth transferred to receivers

Account Criteria:

1. Life (term)
2. Donor access
3. Donor control (how to invest and distribute)
4. Discount value of donated asset (to minimize transfer tax)
5. Tax efficiency

Personal Account

1. Decided by donor
2. Full access
3. Full control
4. No discount in valuation as cash
5. No. deposit after tax dollar and gain is subjected to tax

Grantor-retained annuity Trust (GRAT)

0. Grantor receives annuity; can have GRAT pays tax for the annuity; So defective
1. Short term (<10 years) to be tax-efficient. Long term is inefficient when grantor dies subjects to estate tax
2. Can have substitution assets
3. Depends
4. Discounts when donates LLC or privately held vehicles
5. Can generate tax alpha for the trust; beneficiaries receives remainders free of tax

Foundation

0. Can be public (accept public donation) or private (only family member)
1. Indefinite term
2. No access
3. Can manage investments
4. No valuation benefits because benefactors want maximum donation tax deduction
5. Tax exempt

Variable Life insurance policies

0. Whole life insurance policy that investor can decide how to invest
1. Life of individual covered
2. Some can borrow
3. Can allocate to assets allowed
4. No
5. Investment return are tax-deferred

Tax-deferred Pension

1. Life term of account owner
2. Until 59.5 years old
3. Full control of allocation
4. Little valuation discount
5. Defer until withdrawal

Charitable Trust (CRT –Remainder, CLT- Lead)

0. CRT: grantor gets annuity and charity gets remainder; CLT: charity gets annuity and beneficiaries get remainder
1. <20 years
2. Forfeited access
3. According to documents
4. Little valuation discount as donor want to maximize donation tax reduction
5. Taxable. Good to avoid low basis stock tax.

Generation Skipping Trust (GST)

0. Complete (meet estate tax code provisions) as grantor loses access; defective (for income tax code) as grantor can pay income tax for the trust
1. 1 generation (20 years); some states allow dynasty trust
2. Forfeited
3. According to trust documents
4. If donate LLC or privately held vehicles, can have valuation discount
5. When defective, can generate tax alpha

Intergeneration Transfers:

1. Intergenerational Loans
1. Guarantee/pay loans for younger generation
2. Loan high earning assets to younger generation
2. Defective Trusts
1. Grantor pays taxes for trust income
2. Thus generated tax alpha for the trust
3. Family Partnership
1. Combine asset and can do more diversified investment that otherwise could not be achieved
2. Tax-efficient way to transfer assets among family members