EFTA01193830.pdf

Split-Interest Purchase: Comparison of Single Life Interest and Successive Life Interests Single Life Interest Date Remainder Vests LDB's death Death of survivor of LDB and DRB Share of $48 Million • LDB (Life Interest: 32.867%) $15,776,160 • LDB& DRB (Life interests: 42.290%) $20,299,200 Purchase Price (see Assumptions & Notes)) • Trust (Remainder Interest: 67.133%) $32,223,840 • Trust (Remainder Interest: 57.710%) $27,700,800 Advantages • Residence is encumbered by life estate for shorter period • Reduces share of purchase price borne by trust • Additional planning flexibility after LDB's death e.g., • DRB's right to continue to use residences upon LDB's Trustees may (but are not required to) charge DRB rent, death is assured thereby reducing her estate Other Considerations • Gives Trustees more flexibility as they own the residence • Determining share of purchase price (and capital sooner—after LDB's death, DRB's use of the residence is in improvement costs) borne by each successive life estate the Trustees' discretion. may require retaining an actuary (for each expenditure) • Trustees can charge rent, which is a "gift tax-free" transfer • DRB must pay for her interest using independent funds from DRB to the trust, reducing her taxable estate • DRB has right to use the residence until her death— Trustees cannot sell without her consent while she is living Assumptions & Notes: • Above calculations assume that the purchase occurs in July, 2014 when the Section 7520 rate is 2.2%, Leon is age 63 and Debra is age 60. The calculations are based on Life Table 2000CM. • For planning purposes, the value of successive life interests is determined by calculating the value of(i) LDB's life interest, and (ii) a joint and survivor term interest and by subtracting (i) from (ii). In practice this value of the successive life interests, and the allocation of costs between LDB and DRB will need to be actuarially determined. EFTA01193830