Tax Planned Wills and Lifetime Wealth Transfer Planning Strategies for High Net-Worth Individuals

1. Tax Planned Wills and Lifetime Wealth Transfer Planning Strategies for High Net-Worth Individuals • Nolan A. Moullé, III • Senior Associate • Fulbright & Jaworski LLP • October 3, 2014

2. Types of Transfer Taxes • Estate Tax • Gift Tax • Generation-Skipping Transfer Tax

3. Exemptions From Transfer Taxes Estate . . . . . . . . . . . . . . . . $5.34 Million* Gift . . . . . . . . . . . . . . . . . . $5.34 Million* GST . . . . . . . . . . . . . . . . . $5.34 Million* * Indexed for Inflation

4. Estate Tax Deferral • Marital Deduction • Deceased Spouse Unused Exclusion Amount (DSUEA) • Tax Planned Wills/Revocable Trusts

5. Husband and Wife Revocable Trust Husband and Wife Revocable Trust Assumes Husband dies first Husband’s Share Management Trust GST = QTIP = Generation-Skipping Transfer Tax Qualified Terminable Interest Property Trust (qualifies for marital deduction) Marital Trust Gift in excess of “Exemption Amount” to QTIP Trust for Wife Family Trust “Exemption Amount” to Family Trust for Wife & Descendants Wife’s Death (Less estate tax due on Wife’s death for Management Trust portion) Wife’s Death (No tax due on Wife’s death for Family Trust portion) Wife’s Death (Less estate tax due on Wife’s death for Marital Trust portion) “Exemption Amount” and “GST Exemption” (reduced by lifetime gifts) Year(s) Amount 2014$5,340,000 Descendants’ Trusts

6. Lifetime Giving Strategies • Annual Exclusion Gifts ($14,000) • Outright Gifts • Crummey Trusts • 2503(c) Trusts • Irrevocable Life Insurance Trusts (ILITs) • Grantor Retained Annuity Trusts (GRATs) • Grantor Trusts • Family Limited Partnerships (FLPs)

7. Annual Exclusion Gifts • Outright Gifts • Immediate Control for Beneficiary • What to do if Beneficiary is a Minor • Crummey Trusts • Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968) • Lapsing Withdrawal Right • Notice to Beneficiary • 2503(c) Trusts • No Need for Withdrawal Rights • Must Terminate at Age 21 • Only One Beneficiary • Must Pay to Estate of Beneficiary if Beneficiary Dies Before Obtaining Age 21 • GST Issues with Crummey Trusts and 2503(c) Trusts

8. Irrevocable Life Insurance Trusts • Why Utilize? Avoids “Incidents of Ownership” Over Life Insurance. • Annual Exclusion Funding? • May Depend on Type of Life Insurance Purchased • Lapsing Rights and Hanging Powers Example: $14,000 Annual Exclusion Gift to ILITPurchase of Term Policy with $14,000 Annual Premium$5,000 / $9,000 Hanging Power • Trustee Selection • Beneficiary Selection

9. Grantor Retained Annuity Trusts Transfer Property • Definition • Mechanics • Grantor Transfers Property to GRAT • GRAT Makes Annual Payments to Grantor • Value of Payments Typically Based Upon Formula • Remainder to Beneficiaries • Walton v. Commissioner, 115 T.C. 589 (2000): Zeroed-Out GRAT • Benefits of GRATS • Low Valuation Risk • Good for Assets with Explosive Growth Potential • GST Issues GRAT Grantor Annuity Stream Remainder Beneficiaries

10. Ten-Year Level-Payment GRAT Calculations

11. Grantor Trusts • History • I.R.C. §§ 671 – 679 • Grantor Pays Tax • Typical Grantor Trust Triggers • Power of Substitution • Power to Lend

12. Family Limited Partnerships • Basic Structure • Gifts/Sales of LP Interests • Grantor Trust as Recipient • AFR Note • Marketability/Minority Discounts • Appraisal of Interests • Business Purpose • I.R.C. §§ 2036 & 2038 GP LLC Limited Partners 99% LP 1% GP FLP

13. Speaker Information • Nolan A. Moullé, III nolan.moulle@nortonrosefulbright.com • Senior Associate 713-651-5488

15. Disclaimer • Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members (“the Norton Rose Fulbright members”) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients. References to “Norton Rose Fulbright”, “the law firm”, and “legal practice” are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together “Norton Rose Fulbright entity/entities”). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.