Learning Goals:

- Understand client goals to determine the appropriate transfer techniques.

- Compare and contrast the characteristics of several asset transfer techniques, including some forms of trusts.

Question 1:

Holly, Aged 60, transfers a business with a FMV of $7,369,000 to a GRAT with the term of 21 years. Assume the section 7520 interest rate at the date of transfer is 4.3%, and Holly retains an Annual Annuity Payment of $365,796 from the trust. The remainder beneficiary is Hollys son, Jeff. What is the taxable gift at the date of transfer?

Question 2:

Holly wants to know all her options. She wants to step away from the business and phase into full retirement. Jeff, fresh out of business school, has an interest in learning the family trade and succeeding his mother. Discuss possible alternatives to a GRAT, there pros and cons, and your recommendation. (Would a GRIT, GRUT, FLP, SCIN, or Private Annuity be acceptable alternatives? Are there any other possibilities?)

Question 3:

Because she wants to phase into retirement Holly is curious to know about using a Private Annuity to generate retirement income for her and sell her business to Jeff. Her adjusted basis in the business is $5,000,000, and her IRS life expectancy is 27 years. She wants to know: How is a Private Annuity different from a GRAT, What yearly payment could she expect from Jeff, What amount of that payment will be subject to capital gains tax, what amount will be subject to ordinary income tax, and what amount is not taxable?

What else should you tell her about using a private annuity in her situation?