I don't know if this will interest anyone (hopefully it will interest new.morning) but if you want an idea how estate planners and tax attorneys go about tax avoidance, here's an example...a perfectly LEGAL example):
Assume an individual -- we'll call him Mr. X -- who is worth $12 million. Assume an estate tax rate of 50% and an estate tax exemption of $2 million. Assume the bulk of Mr. X's estate is made up of his car dealership which is valued at $10,000,000 Without proper tax planning, if Mr. X dies today, his heirs will lose $5 million in estate tax: Estate: $12,000,000 Less exemption: 2,000,000 Taxable estate: $10,000,000 X rate X .5 Estate tax payable: $ 5,000,000 CONCEPT OF THE IMMEDIATE ANNUITY You have to understand the concept of the immediate annuity to see how this scheme works. You can purchase from an insurance company something called an immediate annuity (not to be confused with a tax-deferred annuity). You purchase the immedate annuity from an asset you own and, in return, the insurance company promises to pay you X amount of money each year for the rest of your life, no matter how long you live (it's kinda like a pension plan). How much you get each year depends upon your age and gender: the older you are (and the lower your life expectancy)the more you get each year. So, for example, a 90-year-old who purchases an immediate annuity for $10 million would get a guaranteed annual payout of $3.5 million for life; a 40-year- old who purchases one for $10 million would get $400,000 a year for life. The key point is that the payments stop at death: if you live only one year, the one payment is all that the insurance company had to pay you; if you live a LONG time, the insurance company still has to pay you every year. But the payments end at death. As such, as soon as the $10 million is paid into the program it ceases to be an asset because it is now entirely out of the estate; it is now a promised income stream of whatever amount will be paid out per year. Assets are taxed under the estate tax; income isn't and income that ends at death has no residual value. Okay. The fact is that insurance companies aren't the only entities allowed to sell immediate annuities. Assume Mr. X has heirs: his 2 sons. His 2 sons set up a trust that, like an insurance company, sells immediate annuities. So the trust "sells" an immediate annuity to their father for $10 million that promises to pay him, say, $500,000 a year for life. And the $10 million in assets that are put into the trust is the car dealership...which just happens to make $500,000 in profit each year. So, the father's estate has now been reduced by $10 million, he is still getting his net profit of $500,000 from his business each year (and he signed a contract that has him as the president for 40 years). He dies the next year, there is zero estate tax because his estate is now only worth $2 million (which just so happens to be the size of the exemption), the sons -- who are the trustees of the trust -- get the business in its full $10 million value AND they receive the $2 million that their father is worth. Thus, full transfer of the $12 million estate without paying one penny in estate tax. ------------------------ Yahoo! Groups Sponsor --------------------~--> Yahoo! Groups gets a make over. See the new email design. http://us.click.yahoo.com/XISQkA/lOaOAA/yQLSAA/UlWolB/TM --------------------------------------------------------------------~-> To subscribe, send a message to: [EMAIL PROTECTED] Or go to: http://groups.yahoo.com/group/FairfieldLife/ and click 'Join This Group!' Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/FairfieldLife/ <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
