Source: https://patents.google.com/patent/US6567790?oq=6650327
Timestamp: 2018-03-24 09:16:50
Document Index: 335894049

Matched Legal Cases: ['§25', '§25', '§25', '§ 240', 'art 1', 'art 1', 'art 1', 'art 1', 'arts 2', 'arts 2', 'arts 2', 'arts 2', 'arts 2', 'arts 2', 'arts 2', 'arts 2']

US6567790B1 - Establishing and managing grantor retained annuity trusts funded by nonqualified stock options - Google Patents
Establishing and managing grantor retained annuity trusts funded by nonqualified stock options Download PDF
US6567790B1
US6567790B1 US09453364 US45336499A US6567790B1 US 6567790 B1 US6567790 B1 US 6567790B1 US 09453364 US09453364 US 09453364 US 45336499 A US45336499 A US 45336499A US 6567790 B1 US6567790 B1 US 6567790B1
US09453364
Robert C. Slane
Wealth Transfer Group LLC
1SOGRAT is a trademark of The Wealth Transfer Group Inc., and an application for
registration of the mark has been submitted to the U.S. Patent and Trademark Office.
Under the Internal Revenue Code, a GRAT is a trust in which the grantor retains a qualified annuity interest. As specified in Treasury Regulation §25.2702-2(a)(6), a qualified annuity interest is any interest that consists of the right to receive fixed amounts not less frequently than annually. Herein, an annuity is a payment made not less frequently than annually. To conform with Treasury Regulation §25.2702-3(b) and (d), a GRAT must meet several requirements including but not limited to (1) the interest retained by the grantor must be an irrevocable right to receive a fixed annuity amount, which may exceed the prior year's annuity amount by up to twenty percent, (2) the governing instrument of the trust must prohibit additional contributions to the trust, (3) the governing instrument must prohibit distributions to anyone other than the grantor for its term, and (4) the governing instrument must fix the term of the GRAT, which can be a term of years or for the life of the grantor, or for the shorter of those periods. The GRAT term should be at least two years and can be as long as the grantor chooses.
2Microsoft Excel is a registered trademark of the Microsoft Corporation.
3Visual Basic 6 is a registered trademark of the Microsoft Corporation.
4WINDOWS 95 is a registered trademark of the Microsoft Corporation.
5WINDOWS NT is a registered trademark of the Microsoft Corporation.
FIG. 1 is a figurative schematic illustration of such a local area network (LAN) 10 in which a landline 12, or other type communications medium, interconnects several workstations 14-16, a network printer 18, a file server 20, and a network server 22; each connected to the network medium through network interface cards (NICs) 24-29. The network may have any one of a number of known network topologies. The networked devices communicate with each other in the signal protocol established by the network operating system software, which is installed in the network server 22.
In the example shown in FIG. 3, the grantor 100 transfers $311,431 in cash and 100,000 nonqualified stock options 108 to a ten-year GRAT 102. The cash is included to be used to pay the annuity in case the value of the options decreases, in order to keep the options in the GRAT 102 for as long as possible. The annuity amount is fixed and will require more options to reach that fixed amount if the options have decreased in value. The optimum annuity 110 is that which results in the lowest possible gift, and is determined by calculating an annuity payment that will as closely as possible equal on a present value basis the principal contributed to the GRAT. The calculation complies with IRS Revenue Ruling 77-454 and various regulations, including Treasury Reg. §25.7520-3(b)(2)(v) Example 5. Computer software applications are available that perform this calculation, such as NumberCruncher by Leimberg & LeClair, Inc., of Bryn Mawr, Pa. and zCalc by Lexcite Development, LLC of Arlington Heights, Ill. The optimum annuity percentage in the example in FIG. 3 is 14.50221% of the assets transferred to the GRAT 102, or $314,325. The cash will be paid out of the GRAT 102 first, allowing the options to have more time to appreciate, the goal being to maximize the number of options left in the GRAT at the end of the GRAT term. The gift is valued at $93,364 based on the value of the assets transferred to the GRAT less the present value of the annuity and a mortality component. The grantor 100 must pay at a rate of up to 60% of the gift value as the gift tax 116 to the IRS 106 in an amount as high as $56,018.
Executive or Director Age 55
Income Tax Bracket 40%
Estate Value $20,000,000
Estate Tax Bracket 55%
Prior Taxable Gifts $3,000,000
Marginal Gift Tax Bracket 55%
Stock Price at time of Grant $50.00
Exercise Price $50.00
Stock Volatility 20%
Expected Dividend 1.5%
Risk Free Interest Rate 6%
Options' Expected Life 10 Years
Stock Appreciation 15% per Year
Year Cash Paid Options Paid
1 $314,325.44 0
2 $8,947.22 10,451
3 $21.32 8,604
4 $33.38 6,906
5 $11.08 5,569
6 $15.62 4,514
7 $4.85 3,681
8 $3.84 3,020
9 $112.34 2,490
10 $19.52 2,064
1. A method for minimizing transfer tax liability of a grantor for the transfer of the value of nonqualified stock options to a family member grantee, the stock options having a stated exercise price and a stated period of exercise, the method performed at least in part within a signal processing device and comprising:
establishing a Grantor Retained Annuity Trust (GRAT);
funding said GRAT with assets comprising stock options, the stock options having a determined value at the time the transfer is made;
setting a term for said GRAT and a schedule and amount of annuity payments to be made from said GRAT; and
performing a valuation of the stock options as each annuity payment is made and determining the number of stock options to include in the annuity payment.
2. The method of claim 1 wherein the amount of the annuity is set by determining an optimum percentage of said GRAT assets that will be said annuity with the purpose of reducing the taxable gift value.
setting a term for said GRAT and a schedule and amount of annuity payments to be made from said GRAT;
performing a valuation of the stock options as each annuity payment is made and determining the number of stock options to include in the annuity payment; and
establishing an Irrevocable Life Insurance Trust (ILIT) that provides a life insurance policy on the grantor with the family member grantees as named beneficiaries, said ILIT to receive said assets of said GRAT on said GRAT's natural termination.
14. The method of claim 13 wherein the amount of the annuity is set by determining an optimum percentage of said GRAT assets that will be said annuity with the purpose of reducing the taxable gift value.
performing a valuation of the stock options as each annuity payment is made and determining the number of stock options to include in the annuity payment;
determining an optimum percentage of said GRAT assets that will be said annuity with the purpose of reducing the taxable gift value;
including an amount of cash in said transfer to said GRAT at least equal to the first year's annuity on an estimated present value basis assuming a rate of return on said amount of cash in said GRAT;
deferring the payment of said options in said annuity by including some or all of said cash in at least one annuity payment, thereby reducing the number of said options required to be paid as part of said annuity, and increasing the number of said options remaining in said GRAT; and
establishing at the time said GRAT is established an Irrevocable Life Insurance Trust (ILIT) that provides a life insurance policy on said grantor with said family member grantees as named beneficiaries, said ILIT to receive said assets of said GRAT on said GRAT's natural termination.
US09453364 1999-12-01 1999-12-01 Establishing and managing grantor retained annuity trusts funded by nonqualified stock options Expired - Fee Related US6567790B1 (en)
US09453364 US6567790B1 (en) 1999-12-01 1999-12-01 Establishing and managing grantor retained annuity trusts funded by nonqualified stock options
US6567790B1 true US6567790B1 (en) 2003-05-20
ID=23800290
US09453364 Expired - Fee Related US6567790B1 (en) 1999-12-01 1999-12-01 Establishing and managing grantor retained annuity trusts funded by nonqualified stock options
US (1) US6567790B1 (en)
US20040006527A1 (en) * 2001-12-12 2004-01-08 Petersen John L. Fully integrated securities act registration statement that includes a gift distribution by the principal stockholders of a blank check company
US20070055617A1 (en) * 2005-09-02 2007-03-08 Frederick Garcia Method and apparatus for creating a benefit plan
US20070055620A1 (en) * 2005-09-02 2007-03-08 Frederick Garcia Method and Apparatus for Creating a Benefit Plan
US8007486B2 (en) 2007-01-24 2011-08-30 Technoflex Method and set for transferring a fluid between two containers
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Estate Planning & Taxation Coordinator, Grantor Retained Annuity Trust (GRAT), ¶ 39,141, Sep. 7, 1999.
Franz, D.R., "How to Value Gifts of Employee Stock Options," The Tax Advisor, Dec. 1998, pp. 848-855.
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National Network of Estate Planning Attorneys, Web Page for Keys to Wealth Section, Dated Oct. 15, 1999.
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Title 26—Code of Federal Regulations, vol. 13, Parts 2 to 29, [Revised Apr. 1, 1999], Sec. 20.7520-3, pp. 526-530.
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zCalc, Tax and Estate Planning Software, Web Page Information, Dated Nov. 11, 1999.
Owner name: WEALTH TRANSFER GROUP, L.L.C., FLORIDA
Free format text: ASSIGNMENT OF ASSIGNORS INTEREST;ASSIGNOR:SLANE, ROBERT C.;REEL/FRAME:010627/0254
2015-01-06 FPB1 Reexamination decision cancelled all claims