Facebook is in the news for more than launching its first initial public offering these days, as one news article reports. We thought Michigan residents might be interesting in learning how Facebook founder Mark Zuckerberg and several company insiders are using a legal tactic called a “grantor-retained annuity trust” to avoid paying hundreds of millions of dollars in estate and gift taxes on their Facebook shares.
There can be a number of financial benefits to a proper estate plan that includes trusts and trust administration, as this story demonstrates.
An estate and gift tax expert says it is no surprise these company insiders are using annuity trusts as it is an excellent strategy that allows estate owners to shift their wealth to others with little to no tax payments and minimal economic or legal risk. When you consider the enormous amount of money involved that is a lot of savings of wealth.
According to the company’s prospectus, there are eight different annuity trusts set up by these insiders over the last four years. These trusts total roughly 22 million shares. Now if you have been following the news of late, Facebook went public at $38.00 a share with some reports saying the individual share price increased to $42.00 during trading last week. That means the shares in these trusts could be valued at close to a billion dollars.
Basically, the benefits of these types of trusts allow the transfer of asset appreciation from one taxpayer to another, or others, without having to pay taxes on that gift. In this particular case, the benefits of theses trusts are enormous. If these insiders decided to hang on to their shares until they died or gave them away after the IPO then they could owe more than $200 million in gift and estate taxes. And this amount was calculated on a $31.50 value per share, not the $38.00 per share offering price.
Clearly there are many benefits to proper estate planning and preserving as much of your wealth and assets as possible for your loved ones. An estate planning attorney experienced in trust administration is a good place to begin, even if you are looking at a much smaller estate than this story describes. In fact, the smaller the estate, the more important it can be to persevere as much of it as possible for future generations.
Source: The Wall Street Journal, “How Facebook’s Elite Skirt Estate Tax,” May 11, 2012