Estate Planning Case Study

estate planning

Giving a producer confidence to work in advanced markets with high net worth clients by providing estate planning support.

Facts of Case:

This case involved a husband age 53 and his wife age 51. They have two grown children and one grandchild, and they have accumulated a rather substantial net worth. Although they had done only limited estate planning, they were aware of the
benefits of planning, given their sizable estates. The wife and the producer’s assistant were best friends and that helped to solidify the relationship.

The clients’ assets included the following:

  • A home held in joint ownership and valued at $4 million with no outstanding mortgage.
  • Cash in the form of $100,000.
  • Personal tangible property valued at $150,000.
  • A Rental LLC (the primary company) which is in the business of renting furniture and other items. The husband owns 100% of this company and was recently offered $20 million for it. It has $2 million of debt.
  • A Building LLC which owns the buildings and studios. This LLC is owned by the husband and is currently valued at $10 million. It has a $3 million mortgage.
  • An Equipment LLC that owns large equipment that is used in connection with the rental business. This company is valued at $1 million and has no debt. The husband owns 50% of this LLC and his brother owns the other 50%.

The clients were concerned about several issues, including:

  • Providing financial independence for himself and his wife, separate and apart from his businesses.
  • Minimizing the estate settlement costs at both the first and second death.
  • Having sufficient liquidity to pay projected estate settlement costs.
  • Making sure that their children and grandchildren receive the assets at the appropriate time so that their estate is not lost to creditors or ex-spouses.
  • Controlling the future growth of their estates.
  • Taking steps to protect the business from the loss of the client in the event of death or disability.

Proposed Solutions:

During several case consultations with the producer, we discussed the following potential solutions:

How to best update the client’s estate planning documents with focus on proper titling of assets and naming of primary and contingent beneficiaries.

The purchase of a $5 million life insurance policy on the husband. In order to avoid increasing the size of their gross estates for estate tax purposes, we suggested that this permanent policy be held by a newly created irrevocable trust.

We also discussed how the Trustee could be authorized to use some of the death proceeds for key person coverage (e.g., to lend monies to the various companies to service the debt, increase compensation to key individuals and/or to hire capable managers).

The balance of the death proceeds could be used to purchase the LLC interests from the husband’s estate. In this way, the wife could receive the life insurance proceeds instead of the illiquid and unmarketable LLC interests. She could use the sale proceeds to provide income, pay medical bills, attorney fees and other estate settlement costs.

We also explained how the irrevocable trust may be able to purchase these LLC interests from the husband’s estate at a reduced price by taking advantage of the discount for lack of control and lack of marketability. We discussed how the LLC interests purchased by the trust could continue to appreciate for the children’s benefit and are not subject to estate tax at the wife’s death, essentially freezing the value of the LLC interests at the time of the husband’s earlier death.

We also recommended the purchase of a $10 million survivorship life policy to be held by a newly created Dynasty Trust. We suggested that this trust be designed as an intentionally defective grantor trust with generation-skipping provisions. We suggested that premiums be paid by a split dollar loan arrangement.

Presentation to Client:

  • Before beginning work on the presentation, we had a conference call with the producer and the clients to discuss their goals and objectives. Only after reaching a consensus on their objectives did work begin on the case presentation.
  • The second step involved calculating the estate settlement costs today and in ten and twenty years and preparing the case presentation. We also prepared the life insurance illustrations.
  • We had a second conference call with the clients and their attorney, discussing in detail our recommendations, answering questions and providing additional support and specimen documents.

Post Case Analysis:

  • One of the first hurdles to overcome was the lack of knowledge on the part of the client’s attorney in regard to intentionally defective grantor trusts, generation-skipping trusts and private split dollar loans. We were able to overcome this issue by scheduling a couple of conference calls and providing the attorney with background materials and specimen documents. We also reviewed the attorney’s final work product and made suggestions where appropriate.
  • A second major hurdle was the underwriting on the wife’s life, as a couple of issues surfaced, and her doctor did not fully cooperate with underwriting.
  • The most important benefit from this case was that the producer had renewed confidence in his ability to work in the advanced markets. He was pleased with the support he received from KBM Consulting, LLC and indicated that one of his goals for the coming year was to pursue three wealthy prospects. He had been hesitant to pursue these large net worth clients in the past because of his perceived lack of knowledge in the advanced markets area.


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