Case Studies and Articles

Asset Protection and Multi-Generational Estate Planning Tools

Asset Protection and Multi-Generational Estate Planning Tools

Asset Protection and Multi-Generational Estate Planning Tools

Allen (72) and Elizabeth (64) Becker have a successful chain of franchise fast food restaurants. Starting with just one restaurant 40 years ago, they both worked the grill and cash register, even mopping floors at night to save payroll expenses to get their fledgling business off the ground. Now, after years of hard work, the businesses are valued at $6.25 million and Allen is reluctantly selling the stock in his corporation after experiencing some health problems. With no chance to continue operating the business, there was only a choice between selling the stock and paying the capital gains tax, or using a §664 Charitable Remainder Trust to control 100% of the principal. After Allen’s accountant attended a seminar on using a CRT to more efficiently sell closely-held businesses he met with the Becker family and suggested bypassing the capital gains tax “hit”. However, Allen was initially unwilling to give up all the stock and principal to charity, so a strategy was developed to only transfer 80% of his company stock to the charitable remainder unitrust, and sell the remaining 20% in a routine taxable sale. The new buyer acquired 100% of the stock from two separate sellers (i.e., The Becker CRT and Allen Becker individually). This technique allowed Allen and Elizabeth to use the tax deduction of $1,583,350 created by the transfer of $5 million in corporate stock to their CRT and offset most of the tax liability on the $1.25 million taxable sale. The Beckers then took $1.2 million from the taxable sale proceeds and created an Irrevocable Life Insurance Trust (ILIT) to hold a survivor life insurance policy funded with one payment.

To further protect family assets from the heirs’ mismanagement, their attorney drafted the ILIT to make use of the Becker’s Unified Credit and Generation Skipping Tax Exemptions. This protects all of the proceeds from estate taxes for the duration of the trust, probably 100+ years or so. The advantage of designing this “dynasty trust” is that it controls and protects family assets from taxation, litigation, divorce and spendthrifts while still providing the heirs with an opportunity to distribute and spend family wealth. By using the ILIT to purchase an insurance asset, this special trust now holds capital that creates no current income tax liabilities. At the surviving spouse’s death, the family trust will receive $5 million in insurance proceeds, free of both income and estate taxation. With no other assets in the Becker’s ownership, the family escapes all estate taxation and has $5 million in personal financial capital to use inside the family trust. Besides this tax leveraged asset, there will be an additional $8.8 million in social capital inside their charitable trust. Henry & Associates designed the Becker scenario* and compared the two options of (a) selling stock and paying the income tax, reinvesting the balance at 9% or (b) gifting the stock to an IRC §664 Trust and reinvesting all of the sale proceeds in a similar 9% balanced portfolio. At the termination of the CRT, when the surviving spouse (most likely Elizabeth) passes away, the capital inside the trust will pass to a community foundation with Becker heirs sitting on an advisory board to make recommendations about funding charitable programs of interest to their family. Since diabetes and cancer have affected the Becker family over the years, much of the annual support of about $500,000/year, will be used to fund research and education on these two diseases. This family has regained control of their social capital and now has an effective asset protection strategy that will serve the Becker family for many years.

Partial Corporate Stock Sale CRT Strategy

(see our web-site other tools)

Sell Asset and Reinvest the Balance (A) Gift Asset to §664 CRT and Reinvest (B)
Fair Market Value of 80% of Corporate Stock



Less: Cost of Sale (legal fees, commissions, appraiser)



Adjusted Sales Price



Less: Tax Basis


Equals: Gain on Sale


Less: Capital Gains Tax (federal and state combined)


Net Amount at Work



Annual Return From Asset Reinvested in Balanced Acct @ 9%


Avg. Annual Return From Asset in 6.5% CRUT Reinvested @ 9%


After-Tax (42%) Avg. Spendable Income



Statistical Number of Years of Cash Flow for Income Beneficiaries



Taxes Saved from $1,583,350 Deduction at 42% Marginal Rate


Tax Savings and Cash Flow over Joint Life Expectancies



Hypothetical evaluationsare provided as a professional courtesy to members of the estate planning community. Call for suggestions.

©Vaughn W. Henry, 1997

Henry & Associates