Case Studies

Case Study One: Bill and Mary

Protected Their Assets From Lawsuits or Attachment

At the end of the day, Bill and Mary wanted to use secure and proven asset protection strategies to enhance their comprehensive estate plan. Protecting their legacy while having access to their resources was of critical importance to the couple.

Bill and Mary have been married over 35 years and have raised 3 children, all of whom are presently married with children.

Bill has owned his own business for many years and has been successful in several outside ventures, including the acquisition of several multi-tenant residential properties. He received an attractive offer to sell his business. He is planning to accept so he can devote more time to his family, to the personal management of his investments, and to his rental properties. He plans to remain on the board of directors of several firms, one of which is a publicly traded company. For many years, Mary has been active in the community and serves on several boards of trustees.

Bill and Mary had a revocable living trust and companion wills, a life insurance trust, and durable powers of attorney for health care and property. Bill was concerned about the potential exposure to liability from the sale of his business, the boards on which he serves, and from the real estate portfolio his living trust owns and which he manages as the trustee.

Bill and Mary were given the following advice from the Jeffrey M. Verdon Law Group in connection with the restructuring of their estate plan. In addition to comprehensive estate planning, we were able to reduce the size of the projected taxable estate by gifting assets from their estate to their children and grandchildren, without the loss of control.

Bill and Mary achieved several important goals:

1. Protected their assets against lawsuits or attachment from whatever source.

2. Reduced their taxable estate with a gift to the HYCET Trust using the available gift exemption, while maintaining the option to have access to the funds if their financial circumstances changed.

3. Maintained management and control of their rental properties and investments.

4. Created a comprehensive estate plan where the assets held in the trust were not subject to the vagaries of the U.S. legal system, including a superior estate planning vehicle to avoid the expense and problems of a challenge to the trust after their deaths.

Case Study Two: Mrs. B

$18M Discount Sees an Immediate Estate Tax Savings of Nearly $10M

The following Case Study illustrates the methods that can be employed in designing an estate plan to reduce, or even eliminate, the federal estate and generation-skipping transfer tax at death. The subject of this Case Study attended one of Mr. Verdon's seminars on Advance Estate Planning, saw the application of the strategies to her situation, retained our law firm to analyze her specific factors, and elected to modify her estate plan to achieve the desired tax savings.

Existing Estate Plan Design: Several years before the death of Mr. B, he and Mrs. B had their estates planned by a very competent estate planning lawyer in their hometown. The attorney had formed a living trust and funded it with their joint assets, formed an irrevocable life insurance trust that purchased substantial amounts of life insurance to pay the estate taxes upon the death of the survivor, and transferred their home to a QPRT (a device to reduce the estate taxation on their personal residence). Most of the conventional estate planning strategies were in place when we met.

When Mr. Verdon met Mrs. B, she was in her early 70s and in very good health. When Mr. B died, the estate was valued in the area of $60M. The living trust was established to take advantage of the full marital deduction, so that the estate tax would be deferred until Mrs. B died. When we projected the value of the estate at Mrs. B's death, we concluded that her estate taxes would far exceed the amount of life insurance payable at her death, and would substantially reduce the liquidity available in the estate.

Mrs. B was also making gifts of almost $1M per year to the life insurance trust in order to keep the life insurance policies in force. Mrs. B had consumed her available unified credit, resulting in the gifts being taxed to the tune of $550,000 per year.

Finally, Mrs. B has adult children to whom the estate is to pass at her death. She wanted to examine the ability to reduce the taxes at death, but during her lifetime she wanted to retain full control of her holdings without any interference from the children.

Objectives: Our objectives in planning this estate were as follows:

  1. Freeze the value of the estate at current values and transfer the current assets out of her estate to shift the future growth to Mrs. B's descendants;
  2. Accomplish #1 without Mrs. B having to incur any immediate gift or capital gains tax;
  3. Reduce the value of the current estate by using available discounting techniques;
  4. Eliminate the annual gift tax on the funds used to maintain the life insurance policies in the insurance trust; and
  5. Arrange for Mrs. B to remain in full control of her holdings, without such control resulting in the assets being included in her estate.

RESULTS OF REVISED PLANNING

Most of our higher-net-worth clients come to our firm with many of the conventional tax planning strategies already in place. However, the conventional estate planning strategies are designed to deal with a much smaller estate tax problem than we often find.

As you saw from the Case Study illustrated above, by looking at the same problem from a different perspective, and by utilizing legal principles currently available to everyone, substantial tax savings can be achieved. In Mrs. B's case, the following was accomplished:

  • Removal of appreciating assets from her estate without any transfer tax cost;
  • Reduction of her estate by 30% ($18M) by using the valuation discounting currently available to everyone;
  • Estate value frozen at $42M (not $60M) and all future growth to occur outside Mrs. B's taxable estate;
  • The $18M discount equals an immediate estate tax savings of almost $10M;
  • Using the SFT to purchase the life insurance policies on which Mrs. B had been making annual gifts of $1M, she will save over $500,000 annually; and
  • By using South Dakota for the domicile of the SFT, the estate and generation-skipping transfer tax will be avoided in perpetuity.

Case Study Three: Julie and Mark

Unforeseen Danger - Surprise Litigation

Julie and Mark had worked for decades to get to the place they are in today-and it is a very good place. They had accumulated over $12M, having sold Mark's company, and were now smartly invested using state-of-the-art comprehensive estate planning techniques. For the first time in their 35-year marriage they were traveling the globe, spending time with their children and grandchildren, donating to organizations and foundations that sung to their hearts, and involved in some wonderful and fun leisure pursuits they had wanted to try out for years.

Then out of the blue, the buyer who purchased Mark's business several years ago sent a letter to Mark's lawyer informing them that several irregularities in their accounting had surfaced. If the buyer had known about this before purchasing the business, he would not have gone forward. The buyer wanted his money back plus damages and fees.

Having been advised by his lawyer to take the funds from the sale and put them into an offshore asset protection trust, the funds had been safely protected from a future legal calamity, including a "Buyer's Remorse." When Mark's lawyer informed the buyer's lawyer of the challenges that the buyer would encounter in trying to reach Mark's assets, the buyer took a token settlement and agreed not to bother Mark again. Without the asset protection trust in place, Mark would be defending a fraud lawsuit and risk having a court decide the buyer was entitled to a return of his money plus damages and costs. Was Mark smart to do the advanced planning? You bet he was.