ESTATE PLANNING FOR LIQUIDITY (60 minutes)value and hard to sell, may also be held. Estate plans must anticipate the need for liquidity and formulate strategies for providing it or

ESTATE PLANNING FOR LIQUIDITY

First Run Broadcast: September 29, 2016

1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes)

Liquidity is an almost universal need in estate planning. When a client dies, death taxes may

need to be paid. Expenses incurred in administration need to be paid. Distributions may be

required under trust instruments. For these and many other reasons, estates need cash. The big

challenge comes when the estate has assets that, though valuable, are not liquid. Assets may

include real estate that is not easily (or at least quickly and profitably) sold. Or a successful

family business may be involved, where ownership stakes are not easily transferred or for which

there is no ready market. Complex financial assets, artwork or other unique property, hard to

value and hard to sell, may also be held. Estate plans must anticipate the need for liquidity and

formulate strategies for providing it or deferring taxes and distributions until liquidity can be

created. This program will provide you with a real world guide to practical strategies for creating

liquidity in trust and estate planning.

Estate planning and administration to obtain liquidity for illiquid assets

Challenges of planning for illiquid assets like real estate, family businesses, and unique

property

Techniques and tools to fund tax liabilities, distributions, expenses and more

Mechanics of electing a deferral of estate tax under IRC Section 6166

Use and advantages of using Gaegin notes to obtain liquidity

Advantages and disadvantages of use of redemptions and buy-sell agreements

Use of life insurance and other financial products to provide liquidity

Speakers:

William Kalish is a partner in the Tampa office of Akerman, LLP. His practice focuses on

advising individual clients and their families on their estate and trust plans, including wills,

revocable trusts, irrevocable trusts, charitable trusts, private foundations, and limited

partnerships. He also practices in probate administration, asset preservation, business succession

planning for family-owned entities, and the division of business interests in the context of

divorce. He is a Fellow of the American College of Tax Counsel, formerly served as chair of

Administrative Practice Committee of the ABA Tax Section, and has served as an Adjunct

Professor of Law at Stetson Law School teaching estate planning. Mr. Kalish received his B.A.

from the University of Pittsburg and his J.D. with honors from George Washington University

Law School.

Jeffrey M. Gad is a partner in the Tampa, Florida office of Akerman, LLP, where his practice

emphasizes representing individuals emphasizing a broad range of probate, business and taxation

related issues. His practice integrates the personal and estate tax planning concerns of individuals

with tax and business planning for their closely-held businesses. He has extensive experience in

all aspects of probate and trust administration, including the preparation of estate tax returns.

Mr. Gad earned his B.S.B.A. from the University of Florida, his J.D., magna cum laude, from

Nova Southeastern University, Shepard Broad Law Center, and his LLM from New York

University School of Law.

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Estate Planning for Liquidity Teleseminar

September 29, 2016 1:00PM – 2:00PM

1.0 MCLE GENERAL CREDITS

PAYMENT METHOD:

Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________

VBA Members $75 Non-VBA Members $115

NO REFUNDS AFTER September 22, 2016

Vermont Bar Association

CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: September 29, 2016 Seminar Title: Estate Planning for Liquidity Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

Estate Planning and Liquidity: Core Concepts

Jeffrey M. Gad, Esq.

(813) 209-5013

[email protected]

William Kalish, Esq.

(813) 209-5035

[email protected]

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This Presentation does not constitute tax, legal or other advice from

Akerman LLP, and is provided for informational purposes only. Akerman

LLP disclaims any responsibility with respect to assessing or advising the

any attendee as to the legal, tax or other consequences arising from the

attendee’s particular situation. The views and opinions expressed in this

Presentation are those of the presenter, and should not be attributed to

Akerman LLP.

Acknowledgements &

Disclaimers

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To make sure your illiquid assets are distributed in

accordance with your wishes when you die.

To avoid a “fire sale” of assets to cover taxes and liabilities

which may be triggered at passing (ex. event of default

under mortgage by reason of borrower’s death).

To mitigate potential taxes.

To protect and preserve your assets.

Estate planning to obtain liquidity

for illiquid assets

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Intestate Estates

For individuals who die without a Will or Trust, the state

where they reside at your death will provide a de-facto

“default” estate plan through the intestacy laws.

This “default” estate plan may result in:

1. undesirable dispositions of your assets;

2. potential exposure to otherwise avoidable tax

liabilities; and

3. potential exposure of your assets to the claims of

creditors.

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Assets held individually by a decedent at his or her death must be

probated in order for the assets to pass to the beneficiaries under the

decedent’s will. The decedent’s Personal Representative manages

the probate for the decedent’s estate.

Probate requires a listing of the decedent’s assets, notice to creditors

who may have claims against the decedent, and distribution of assets

to beneficiaries.

Only assets held individually by the decedent are subject to probate –

not joint assets, not insurance proceeds payable directly to a

beneficiary, and not assets held by a revocable trust.

A will can direct the decedent’s Personal Representative to “pour

over” all of the assets of a decedent’s estate to a revocable trust.

Wills and Probate If you have a Will and Trust:

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Grantor: the person who creates the trust;

Trustee: the person who controls the trust and its assets; and

Beneficiaries: those who are entitled to receive the benefits from

the trust, (i.e., income and principal).

Revocable Trusts: Basics

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A revocable trust is established by a grantor to manage assets both

during his or her lifetime and after his or her death.

A revocable trust is managed by a Trustee, who acts as a fiduciary

(usually the grantor during the grantor’s lifetime).

Assets held in a revocable trust before the death of the grantor are not

included in the grantor’s estate.

A revocable trust can be used as a guardianship or will “substitute.”

A revocable trust can be easily amended or revoked by the grantor

during the grantor’s lifetime.

Revocable trust assets are not exempt from the grantor’s creditors.

Revocable Trusts

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In 2016, the federal estate and gift tax exemption amount

is $5,450,000 (indexed for inflation).

The annual gift tax exclusion amount is $14,000.

The federal tax rate on estates in excess of the exemption

amount is graduated from 18% to 40% (reaching 40% at

just $1 million).

Federal Estate and Gift Taxes

Challenges of planning for

illiquid assets like real estate,

family businesses, and unique

property

Many entrepreneurs and small business owners are reliant on

their business for satisfying expenses and personal cash flow

needs.

Real estate owners are susceptible to market conditions,

including “bubbles” and tightening restrictions on financing.

Unique property such as artwork and collectibles have limited

liquidity in the form of secondary markets.

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Outside Sources to Generate

Liquidity

Personal Investments and Marketable Securities.

Buy-Sell Agreements.

Financing options and leverage of business.

Sale of business to family members, through sale to a “defective grantor trust”

or through a Self-Cancelling Installment Note (SCIN).

A sale to a defective trust in exchange for a promissory note may be

an effective method for transferring the future income and

appreciation of assets in a business with little or no gift or estate tax

consequences, while providing a source of income for the grantor.

The overall structure and use of a SCIN is similar to that of an

installment sale to a defective trust as stated above, except that the

promissory note will have provisions which require the termination of

the note upon the seller's death.

Life Insurance.

Life Insurance

Life Insurance is frequently used to help mitigate potential estate

tax liabilities, fund distributions, and generate liquidity post-death;

but can also provide benefits to the owner during life.

Added benefit: Many states exempt cash value and policy

proceeds of life insurance and annuities from creditors.

Life insurance owned through a properly structured irrevocable

life insurance trust (ILIT), will generally exclude death benefit

proceeds from the insured’s estate.

Trust must be irrevocable.

Crummey Notices are required to insure “completed”

annual gifts on premium payments.

3 year look-back rule applies under IRC 2035 with

respect to transfers of existing policies.

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Deferral of estate tax under

IRC Section 6166 Pursuant to IRC 6166, a personal representative may elect to defer estate

taxes if the decedent’s aggregate interest in one or more closely held

businesses exceeds 35 percent of the decedent's adjusted gross estate.

In order for the estate to defer the payment of estate taxes under IRC 6166,

the following requirements must be satisfied:

The decedent must have been a U.S. citizen or resident at death.

The decedent’s interest in one or more closely held businesses must

comprise more than 35% of the decedent's adjusted gross estate.

The estate's personal representative must make an IRC 6166 election

on a timely filed Form 706 - Federal Estate Tax Return.

If the above requirements are met, the estate tax attributable to the closely

held business(es) may be deferred over a 14-year period. The executor can

elect to pay the estate tax attributable to the closely held business interest in

10 annual installments, commencing within 5 years after the due date.

Use & Advantages of Graegin

Notes

Estate of Cecil Graegin v. Commissioner, T.C.

Memo 1988-477 (Sept. 28, 1988).

A “Graegin note” is a popular option for estates that

lack liquidity to pay estate taxes or other expenses

incurred during the administration of an estate.

This note is often utilized for estates where the

decedent’s primary asset was an interest in a

closely-held business.

Interest paid by an estate through a Graegin Note is

potentially deductible under I.R.C. § 2053(a), which

can reduce the amount of estate taxes due.

There are, however, potential income tax

consequences for the lender, with respect to the

interest payments made on the Graegin Note.

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Redemptions and Buy-Sell

Agreements

Provides for transition and continuity of business

upon the death of the principal owner.

Helps provide a market for an otherwise illiquid

asset by establishing a price and payment terms.

May help to avoid disputes among the remaining

owners of the business and the decedent’s

estate/heirs.

May provide liquidity for payment of estate taxes

and administrative expenses.

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IRC Section 2704 Proposed

Regulations that will impact

intra-family transfers

On Aug. 2, 2016, the IRS issued proposed regulations under

Section 2704 of the Internal Revenue Code that would implement

significant changes to valuation of interests in family-controlled

entities for estate, gift and generation-skipping transfer tax

purposes. The new rules are intended to apply to family-owned

or family-controlled entities and are designed to eliminate or

curtail many valuation discounts in connection with transfers of

interests in such entities.

The public hearing on the proposed regulations is on 12/1/16.

If implemented, certain provisions of the proposed regulations will

take effect with respect to transfers that occur on or after the date

the final regulations are published; and others will apply to

transfers occurring 30 or more days after such publication. Akerman | 15