Walton GRAT: Preserving Family Wealth with an Estate Freeze

RETIREMENT • INVESTMENTS • INSURANCE

© 2013ING North America Insurance Corporation. CN0830-12155-0916

Walton GRAT:Preserving Family Wealth with an Estate Freeze


Disclosures

• Neither ING nor its affiliated companies or its representatives offer tax or legal advice. The strategies suggested may not be suitable for everyone and you should consult with your tax and legal advisors before implementing any of the strategies suggested here.

• These materials are not intended to and cannot be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. The taxpayer should seek advice from an independent tax advisor.

• Life insurance products are issued by ReliaStar Life Insurance Company (Minneapolis, MN), ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company (Denver, CO). Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted and its products issued. All are members of the ING family of companies.

• All guarantees are based on the financial strength and claims paying ability of the issuing insurance company who is solely responsible for all obligations under its policies.

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Three Questions

• Do you have assets whose future growth may create an estate tax problem and which you would like to preserve intact for your children or grandchildren?

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Three Questions


• Do your insurance needs call for premiums that exceed the available annual exclusions for potential “Crummey” beneficiaries?

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Three Questions


• Do your insurance needs call for premiums that exceed the available annual exclusions for potential “Crummey” beneficiaries?

• Would you like to reduce some of the potential long-term risks associated with premium financing or private split-dollar?

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© 2013ING North America Insurance Corporation. CN0830-12155-0916 6

Is there a way to potentially “freeze” the value of my estate

so that I don’t pay gift or estate taxes on future asset

growth?


Is there a way to potentially pre-fund an insurance trust so I don’t have to worry about

keeping premium levels within my annual gift exclusions?


Is there a way to potentially provide my insurance trustee

with resources to make an early exit from premium financing, private split-dollar, or other

similar strategies?


Yes!

Yes!

Yes!


• What is a Walton GRAT?

• It’s a potential estate “freeze” technique where high-growth assets are transferred to an irrevocable grantor trust in exchange for an annuity.


How Does the Strategy Work?

• The Walton GRAT has 5 steps:

#1: Client creates a Grantor Trust





#2: Assets transferred to Trust in exchange for Annuity






#3: Trust makes annuity payments• no income taxes to client since this is a

grantor trust






#3: Trust makes annuity payments

• no income taxes to client since this is a grantor trust

#4: Grantor pays income taxes for Trust






#3: Trust makes annuity payments

• no income taxes to client since this is a grantor trust

#4: Grantor pays income taxes for Trust

#5: At the end of the GRAT term, assets pass to the GRAT’s Remainder Beneficiary(ies) tax-free


Potential Advantages of the Walton GRAT

• Estate “Freeze” -- Future asset growth may be removed from the grantor’s estate.

• No Pre-Funding Required -- unlike an installment sale to a grantor trust, a GRAT does not require the grantor to gift money into the trust prior to the transaction.

• Exit Strategy – a Walton GRAT can potentially provide the grantor’s irrevocable life insurance trust (“ILIT”) with funds to get out of premium financing or private split-dollar arrangements.


Some Disadvantages of Walton GRAT

• Estate Inclusion -- if the client dies before the GRAT term has finished, all of the assets are brought back into her estate.

• Performance Risk -- the Walton GRAT technique only works if the asset used grows at a higher rate than the interest required for the annuity.


The Walton GRAT in ActionJohn & Jane Jones*

• John & Jane Jones are married, both age 55, and own $2 million worth of stock in the highly successful Widget Corp.

• John & Jane expect shares of Widget Corp. to continue increasing in value at an annual rate of 10%

• They are willing to give up ownership of the stock in exchange for an income stream. They are also willing to use a portion of their lifetime gift exemptions to move future asset growth out of their estates.

* These hypothetical results are for illustrative purposes only and should not be deemed a representation of past or future results. This example does not represent any specific product, nor does it reflect sales charges or other expenses that may be required.


John & Jane Jones*

• John & Jane direct their attorney to create a Walton GRAT.



John & Jane Jones*


• John & Jane then transfer $2 million worth of Widget shares into the GRAT in exchange for a 10-year annuity based on a Section 7520 rate of 2.00%.**


** This was the § 7520 rate in effect for September, 2013


John & Jane Jones*


• John & Jane then transfer $2 million worth of Widget shares into the GRAT in exchange for a 10-year annuity based on a Section 7520 rate of 2.00%.**

• The Trust makes annual payments of $223,000 for 10 years.


** This was the § 7520 rate in effect for September, 2013


What Have We Potentially Accomplished?

• Estate Freeze: At the end of 10 years, John & Jane have moved over $1.6 million outside of their estates (assuming at least one of them survives the GRAT term).

• No transfer taxes have been paid and the use of a grantor trust makes the sale income-tax neutral because the GRAT is ignored for income tax purposes.

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• No transfer taxes have been paid and the use of a grantor trust makes the sale income-tax neutral.

• Funded Life Insurance Trust: Assets transferred from the GRAT to the ILIT (the remainder beneficiary) can be used to purchase life insurance on John and/or Jane to create a larger inheritance for their family.

• Unlike a traditional life insurance trust, annual exclusion gifts may not be needed for the Trust to purchase life insurance.

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• No transfer taxes have been paid and the use of a grantor trust makes the sale income-tax neutral.

• Funded Life Insurance Trust: Assets inside the Trust can be used to purchase life insurance on John and/or Jane to create a larger inheritance for their family.

• Unlike a traditional life insurance trust, no annual exclusions will be needed for the Trust to purchase life insurance.

• Exit Strategy: John & Jane have supplied the Trustee with assets which can be used to “exit” premium financing or private split-dollar arrangements.


RETIREMENT • INVESTMENTS • INSURANCE


To learn more about Walton GRATs, talk to your ING

representative.

Documents

Walton GRAT: Preserving Family Wealth with an Estate Freeze