the jack and faith daniels estate

The Jack and Faith Daniels Estate

The Daniels Family Tree

Tom Jerry Jam es

Tim & Y vette D an ie ls

F red W ilm a

Ted & C aro l D an ie ls

Ike Tin a

S am D an ie ls Jan e D an ie ls

Jack D an ie lsF a ith D an ie ls

Jack & Faith Daniels’ EstateCash & CheckingMoney MarketMichigan ResidenceFlorida CondoTraded StocksBondsReal EstateAuto Company StockPension PlanDaniels ManufacturingTotal Assets

Condo MortgageReal Estate MortgageTotal Liabilities

NET WORTH

25’000300’000600’000400’000500’000400’000

1’500’000500’000

2’000’0008’000’000

14’225’000

200’000150’000350’000

13’875’000

Shareholder Ownership

Jac k (fa th e r)7 0 %

F ou n d er

F a ith (m o th er)1 0 %

N ot in vo lved

Ted1 0 %

M an ag em en t & S a les

Tim1 0 %

M an u fac tu rin g

D A N IE L S M A N U F A C TO R IN G C O M P A N Y

Jack’s Main Concerns

• Provide sufficient income to cover Jack’s & Faith’s retirement needs

• Provide Faith with stable income in the case of Jack’s death• Provisions for disabled grandchild• Strong interest in charity gift• Tax efficient and fair distribution of wealth and without providing

to too much “easy money” to beneficiaries

Business Related• Tax efficient transfer of company ownership to family members• Let Jane have the option of becoming a part owner of the family business

Personal Estate Planning for Jack and Faith:

The Jack & Faith Daniels Estate Planning Proposal

Presented by:

The Bankers Trust Co.

And

Rych Associates

29th October, 1999

The Bankers Trust Co.:• Part of the Deutsche Bank Group

• The largest bank in the world in terms of total assets

• Large global network

• Awarded the best Financial Planning outfit in the world, by MEC & Co.

Rych Associates.:• Partners Robert, Yves, Christoph & Heiko, experts in Trust Management + Estate Planning

• Estate Planning boutique, highly respected in this business

Our Recommendations

Jack’s Main Concerns

• Provide sufficient income to cover Jack’s & Faith’s retirement needs

• Provide Faith with stable income in the case of Jack’s death• Provisions for disabled grandchild• Strong interest in charity gift• Tax efficient and fair distribution of wealth and without providing

to too much “easy money” to beneficiaries

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Business Related• Tax efficient transfer of company ownership to family members• Let Jane have the option of becoming a part owner of the family business

Personal Estate Planning for Jack and Faith:

Recapitalization of Company

Jack’s 70%stake

FamilyLimited

Partnership

GeneralPartners

(Common Stock)

LimitedPartners

(Preferred Stock)

ConvertibleBonds

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Transfer of Company Ownership

Who Gets Which Stocks?• Common stock (voting rights) to Tim and Ted

involved in business• Preferred stock (stable dividend) to Sam not involved

in business • Bonds convertible into common stock to Jane

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Transfer of Company Ownership

Management Concerns:• Appointment of an external (non-family member) Chief

Operating Officer (COO)

Jack & Faith Daniels’ EstateCash & CheckingMoney MarketMichigan ResidenceFlorida CondoTraded StocksBondsReal EstateAuto Company StockPension PlanDaniels ManufacturingTotal Assets

Condo MortgageReal Estate MortgageTotal Liabilities

NET WORTH

25’000300’000600’000400’000500’000400’000

1’500’000500’000

2’000’0001’000’0007’225’000

200’000150’000350’000

6’875’000

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Jack’s Main Concerns

• Provide sufficient income to cover Jack’s & Faith’s retirement needs

• Provide Faith with stable income in the case of Jack’s death• Provisions for disabled grandchild• Strong interest in charity gift• Tax efficient and fair distribution of wealth and without providing

to too much “easy money” to beneficiaries

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Business Related• Tax efficient transfer of company ownership to family members• Let Jane have the option of becoming a part owner of the family business

Personal Estate Planning for Jack and Faith:

J&FAfter 15 years

Transfer of Residence:Primary residence: MichiganSecondary residence: Florida Condo

Children

Coverage of Retirement Needs

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Creation of a Qualified Personal Residence Trust (QPERT): Irrevocably transfer both residences for a term of 15 years.

• Upon maturity of the term, the property is passed on to the children

• If J&F die prior to the end of the trust term, the proceeds thereof are subject to estate tax.

During the period of the term, J&F have the right to occupy and use the residences.

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Coverage of Retirement Needs

DMC

Children

Commercial Building owned by Jack & Faith

Lease of 10 Years

Rent of $200,000 p.a.

Gradual Payments via Notes Receivable ($200,000 p.a.)

Sale of Property to children for $2,000,000

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Lease of 10 Years

Rent of $200,000 p.a.

Coverage of Retirement Needs

Sell Real Estate to children and have them lease it back to the company

• With the collected rent paid by the company, the children gradually pay back the sum via notes receivable

Advantages:• The Real Estate exits the parent’s estate• The parents continue to receive fixed income• Only gift tax on the residual

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Coverage of Retirement Needs

Jack & Faith Daniels’ EstateCash & CheckingMoney MarketMichigan ResidenceFlorida CondoTraded StocksBondsReal EstateAuto Company StockPension PlanDaniels ManufacturingTotal Assets

Condo MortgageReal Estate MortgageTotal Liabilities

NET WORTH

25’000300’000

00

500’000400’000

0500’000

2’000’0001’000’0004’725’000

200’000150’000350’000

4’375’000

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Jack’s Main Concerns

• Provide sufficient income to cover Jack’s & Faith’s retirement needs

• Provide Faith with stable income in the case of Jack’s death• Provisions for disabled grandchild• Strong interest in charity gift• Tax efficient and fair distribution of wealth and without providing

to too much “easy money” to beneficiaries

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Business Related• Tax efficient transfer of company ownership to family members• Let Jane have the option of becoming a part owner of the family business

Personal Estate Planning for Jack and Faith:

• Faith’s 10% stake in the company will be changed into preferred stock in order to increase the stability of dividend income

• Creation of a Delaware Trust* which will be funded by the defined contribution plan valued at 2’000’000 (Unified Credit Exemption). Amount in trust to be invested in a growth portfolio.

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Coverage for Faith upon Jack’s Death

* The Delaware Trust is perpetual, therefore has an unlimited trust term.

Jack & Faith Daniels’ EstateCash & CheckingMoney MarketMichigan ResidenceFlorida CondoTraded StocksBondsReal EstateAuto Company StockPension PlanDaniels ManufacturingTotal Assets

Condo MortgageReal Estate MortgageTotal Liabilities

NET WORTH

25’000300’000

00

500’000400’000

0500’000

01’000’0002’725’000

200’000150’000350’000

2’375’000

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Jack’s Main Concerns

• Provide sufficient income to cover Jack’s & Faith’s retirement needs

• Provide Faith with stable income in the case of Jack’s death• Provisions for disabled grandchild• Strong interest in charity gift• Tax efficient and fair distribution of wealth and without providing

to too much “easy money” to beneficiaries

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Business Related• Tax efficient transfer of company ownership to family members• Let Jane have the option of becoming a part owner of the family business

Personal Estate Planning for Jack and Faith:

Charitable Remainder Trust

Auto Company

Stocks$500’000

Non charitable income beneficiary

(Jack & Faith)

CharitableRemainder

Trust

Bonds$400’000

Charitable Remainder

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Provisions for Disabled Child & Charity

Irrevocable Life Insurance Trust “2nd to Die Policy”

Purpose:Replace the principle of the C.R.T. at Jack’s and Faith’s death in order to provide further income to the disabled child* + other grandchildren which will be managed by trustee for children’s benefit.

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Provisions for Disabled Child & Charity

* The Public Benefits Programme for disabled individuals should be considered before determining the distribution to the disabled child.

Jack & Faith Daniels’ EstateCash & CheckingMoney MarketMichigan ResidenceFlorida CondoTraded StocksBondsReal EstateAuto Company StockPension PlanDaniels ManufacturingTotal Assets

Condo MortgageReal Estate MortgageTotal Liabilities

NET WORTH

25’000300’000

00

500’0000000

1’000’0001’825’000

200’000150’000350’000

1’475’000

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Jack’s Main Concerns

• Provide sufficient income to cover Jack’s & Faith’s retirement needs

• Provide Faith with stable income in the case of Jack’s death• Provisions for disabled grandchild• Strong interest in charity gift• Tax efficient and fair distribution of wealth and without providing

to too much “easy money” to beneficiaries

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Business Related• Tax efficient transfer of company ownership to family members• Let Jane have the option of becoming a part owner of the family business

Personal Estate Planning for Jack and Faith:

Tax Efficient Distribution of Personal Wealth

DMC Corp.

Life Insurance on Jack & Faith

DMC Stock still in J & F’s Estate

Estate Costs

DMC buys Insurance for J & F

Upon J & F’s death, the proceeds from the insurance go to the company

DMC buys back stock from J & F’s estate

Money received from the sale of stocks to DMC is used to cover estate costs

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Liquidity Provision for Payment of Estate Tax

• Company buys life insurance for Jack and Faith Daniels with “second to die” clause.

• Establishment of contract between Jack and company obliging company (upon the death of both Jack and Faith) to buy back enough stock from the estate in order to cover the estate tax and administrative costs.

• Company pays for stock with proceeds of life insurance.

Advantages:• Enough funds to cover estate and administration costs• Estate does not need to be liquidated• Insurance proceeds to cover costs are not taxed if the value of stock

redeemed does not exceed the estate tax and administration espense costs (Section 303)

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Tax Efficient Distribution of Personal Wealth

Recommendation for Mrs.& Mr. Jack Daniels

BT Co. & Rych Associates

The Story of Yvette Daniels:

Present Status Study and Recommended Solutions for

Mrs. Yvette Daniels (wife of Tim Daniels), a French citizen

Considerations:

•Transfer of wealth upon Tim’s death would result in US Estate Taxes

•Gifts of upto $100,000 per year during the lifetime of Tim are not subject to US Estate Taxes

The Story of Yvette Daniels:

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Proposed Structure:Tim creates a Limited Partnership with Yvette and gifts her with limited partnership interest with value $100,000 p.a.

Advantages:

•More value (of stock) can be transferred due to permitted discount for lack of control and marketability.

•Yvette cannot cash in or transfer her limited partnership interests without Tim’s consent, i.e. she cannot spend it while Tim is alive.

The Story of Yvette Daniels:

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Recommendation for Mrs.& Mr. Jack Daniels

BT Co. & Rych Associates

Conclusion

Jack & Faith Daniels’ EstateCash & CheckingMoney MarketMichigan ResidenceFlorida CondoTraded StocksBondsReal EstateAuto Company StockPension PlanDaniels ManufacturingTotal Assets

Condo MortgageReal Estate MortgageTotal Liabilities

NET WORTH

25’000300’000

00

500’0000000

1’000’0001’825’000

200’000150’000350’000

1’475’000

Recommendation for Mrs.& Mr. Jack DanielsBT Co. & Rych Associates

Net Taxable worth of the estate has reduced dramatically therefore cutting down the estate tax to a great extent

Recommendation for Mrs.& Mr. Jack Daniels

BT Co. & Rych Associates

Benefits of the Proposed Financial Plan:

Actual tax and wealth transfer expenses on the estate of $ 13,875,000

Taxes and Expenses with the proposed plan:

43% estate and wealth transfer tax on an amount of $1,475,000.

15% Gift Tax on the QPERT ($1,000,000) payable by the beneficiaries upon maturity of the QPERT.

8% Consultation and Management Fee on total present net worth

60% *

14% (+/- 3%)

* 5% Surcharge applicable over the standard 55% for amounts between 10,000,000 - 24,000,000

BT Co.

Erika Belloni+1 212 454 8697erika.belloni@bt.com

Melissa Dolan+1 212 454 8456melissa.dolan@bt.com

Chetana Munot+1 212 454 3453chetana.munot@bt.com

Rych Associates

Robert Sorio+1 210 739 0405robert.sorio@rych.com

Yves Windey+1 210 739 0343yves.windey@rych.com

Christoph De Wilde+1 210 739 3533christoph.dewilde@rych.com

Heiko Jungmann+1 210 739 0234heiko.jungmann@bt.com