A recent Wall Street Journal article detailed how three top Twitter executives have been “making canny estate planning moves” outlined in the company’s IPO documents to cut their estate and investment taxes prior to going public.
According to a WSJ analysis, the Twitter execs have used the following estate planning techniques:
Grantor-retained annuity trusts (GRATs). Stashing pre-IPO shares of Twitter in a GRAT allows the entrepreneurs to transfer asset appreciation to another person or persons virtually tax-free. The GRAT is set for a specific term and while it exists, the owner gets payments every year that equal the value of the original contribution in addition to a return that is based on an interest rate established by the IRS (currently around two percent). Once the term is over – and the owner must outlive the term for it to work properly – the appreciated assets are passed on, usually to a trust for children or other heirs.
Gift trusts. Two Twitter execs established gift trusts in 2012, both funded with Twitter shares. One has a $10 million trust set up, which experts believe was set up to take advantage of the 2012 gift tax exemption – the trust was funded at about the level of his and his wife’s combined exemptions. Another exec gifted $5 million in stock to his wife to set up a trust in her name, allowing her to use her exemption to move the appreciation on the stock out of their estate.
Single-member limited liability companies. One exec holds 44.3 million Twitter shares in a single-member LLC; using this structure enables significant discounts on transfers of the stock. Children or other heirs receive interest in the LLC, bypassing a hefty gift tax that would have resulted if the shares were an outright gift.
You don’t have to be an Internet mogul to use advanced estate planning tools to cut taxes and protect assets for future generations. Contact our Orange County law firm to learn more.