Economic flows of IDGT*
Example - Initial Funding Total assets transferred to trust Valuation discount
Valuation of assets for gift tax purposes
Seed capital/coverage
Trust term
Lifetime gift tax exemption applied
Gift tax paid
Applicable interest rate (AFR)
Annual interest payment on note
Note face value (year 20 balloon payment)
Assumptions
- The arithmetic return of assets = 15%; of which ordinary income/short term capital gains = 15%
$50,000,000 $5,000,000 20 years $5,000,000 $0
2.89% $1,300,500 $45,000,000
Additional funding in year 5 from cascading GRATs
Assumed assets in trust at the end of year 5 Additional assets from GRATs Additional note (9:1 leverage)
Initial note outstanding face value
Total outstanding notes
Remaining note term
Lifetime gift tax exemption applied
Gift tax paid
Applicable AFR
Annual interest payment on notes
- Income tax rate used for majority of analysis = 48.4% (Federal = 39.6%, New York City = 8.33%, Medicare = 3.8%)
- Capital gains tax rate used for majority of analysis = 28.8% (Federal = 20%, New York City = 8.33%, Medicare = 3.8%)
- Income and capital gains tax rates adjusted in early years to reflect current law
$91,799,393 $41,522,399 $373,701,591 $45,000,000 $418,701,591 15 years
$0
$0
2.89% $12,100,476
- Assumes note payments are satisfied using yield first, then seed capital, and finally other assets. If a valuation discount is specified, a pre-disount value is used
Return (asset and seed Interest and principal Trust Value (pre-
capital) payments on note discount) 0 69,285,714 1 10,392,857 1,300,500 78,378,071 2 11,756,711 1,300,500 88,834,282 3 13,325,142 1,300,500 100,858,924 4 15,128,839 1,300,500 114,687,263 5 17,203,089 1,300,500 705,971,667" 6 105,895,750 12,100,476 799,766,941 7 119,965,041 12,100,476 907,631,507 8 136,144,726 12,100,476 1,031,675,757 9 154,751,364 12,100,476 1,174,326,644 10 176,148,997 12,100,476 1,338,375,165 on 200,756,275 12,100,476 1,527,030,964 ea 229,054,645 12,100,476 1,743,985,132 13 261,597,770 12,100,476 1,993,482,426 14 299,022,364 12,100,476 2,280,404,314 15 342,060,647 12,100,476 2,610, 364,485 16 391,554,673 12,100,476 2,989,818, 682 17 448,472,802 12,100,476 3,426, 191,008 18 513,928,651 12,100,476 3,928,019, 183 19 589,202,878 12,100,476 4,505, 121,585 20 675,768,238 430,802,067 4,750,087,756 Return to grantor (nominal) 606,711,231 Net trust amount 4,750,087,756 * Analysis assumes that at the end of year 5 the $41,522,399 cumulative remainder of cascading J.P Morgan GRATs from the previous page is used as seed capital for another note at 9:1 leverage used to 6
purchase $373,701,591 of assets at a 30% discount using today’s long-term AFR of 2.89%
HOUSE_OVERSIGHT_022356