“As often happens, the parents were busy running the business and did not know some of the requirements were not being met,” Hernandez said. “When we discovered the failures we immediately sought collaboration with their tax counsel to make up the missing payments with interest and help create a formal structure and accountability within the business for who was responsible for making sure all payments were made and other requirements adhered to.”
The final fix was to make sure the children did not take possession of the assets into their own taxable estate as the initial structure would have allowed them to do. That little detail could have cost the family about 40% in estate tax on about $30 million to this couple’s heirs, Hernandez said.
There is currently an exemption from estate taxes of approximately $23 million for a married couple, but estate taxes for amounts above the exemption average about a 40%.
After years of collaboration between Omnia and estate planning attorneys and tax counsel, the family was able to transfer the majority of the business to the children. A grantor retained annuity trust, or GRAT, was set up to distribute only the growth of the assets to the children after a certain amount of time. A GRAT is an irrevocable gifting trust that allows a grantor to pass a significant amount of appreciated wealth to the next generation with little or no gift taxes.
Then the unthinkable happened and the husband passed away, leaving his widow to handle the finances.
She initially was confused by some of the payments that were being made and some of the structures that had been established, said Hernandez, adding that he delved into the details with her so she could make informed decisions. He described this as an ongoing process.
“I think in this case it was just a situation where both members of the couple were busy running the business and did not pay attention to all of the necessary details,” Hernandez said. He noted that he has had other women clients in similar situations. Some become more deeply involved and others are content sharing the responsibilities with the professional advisors surrounding the family.
“Another part of the initial problem in this case was that the CPA and the estate planning attorney came in, did their jobs and left. We are fortunate to form deep relationships with the families we work with, and, because we are not paid by the hour, they feel free to come to us with questions at any time.”