Tax Solutions
What is the GFN Plan?
Many people have a fundamental planning challenge: How do you manage and maintain control of your assets during your lifetime, while maximizing the value of what you leave to your heirs? The GFN Plan may be your solution. The GFN Plan is a coordinated and comprehensive income tax planning, estate planning, asset preservation and charitable giving tool designed to:
- Reduce your current income tax liability;
- Gift to your children, while you keep control;
- Lower the taxable value of your estate;
- Maximize the preservation of your assets from liability claims; and
- Facilitate charitable giving while keeping your legacy intact.
The The GFN Plan is a specially designed family limited partnership. Typically 99% is owned by the limited partners, who are you and your spouse, and possibly your children and a charity. The general partner of your family limited partnership is a corporation, the shares of which are owned by members of your family and a charity or non-family member. You control the corporation through a custom designed shareholders agreement.
What Will Your GFN Plan Accomplish?
Income Tax Planning
The family limited partnership with a corporate general partner provides the following income tax planning advantages for your family:
- Deductible Management Fee — The corporate general partner is entitled to a reasonable management fee for managing the assets owned by the family limited partnership. The management fee is tax deductible to the partnership, thereby shifting income to your corporation.
- Income Splitting — The management fee can be used to pay reasonable salaries to the family members who are employees. This may result in splitting income between lower rate taxpayers. Reasonable salaries are tax deductible to the corporate general partner.
- Insurance — The income earned by the corporate general partner can be used to provide a variety of benefits for its employees. The expenses involved in providing such benefits may be tax deductible to the corporate general partner and may not be includable in the taxable income of its employees. The benefits include:
- Health and Accident Insurance
- Tax Deductible Life Insurance
- Split Dollar Life Insurance
- Corporate Owned Key-Man Life Insurance
- Disability Insurance, and
- Group Term Life Insurance
- Benefits and Retirement — The corporate general partner can also sponsor retirement plans for its family members who are employees. These plans include:
- Defined Benefit Plans
- Defined Contribution Plans, or
- Other Employee Welfare Plans
Estate Planning
Estate Planning in the simplest terms is the process of deciding how you would like your property and assets distributed after you are gone and implementing a strategy to achieve these goals in the most tax efficient manner. Some of the more common objectives include the orderly disposition of your home, insurance proceeds, pension plans, and personal possessions to your family members or others; such as a charity or close friend and providing liquidity (typically through life insurance) for estate settlement costs and family needs.
The GFN Plan provides the following estate planning advantages for your family:
- Lower Estate Tax — The market value of your estate is lowered due to well- established principles granting discounts for lack of marketability and fractional ownership of an asset. You save up to $.55 in estate taxes for every dollar your taxable estate is lowered.
- Gifting — The GFN Plan allows for lifetime gifts of limited partnership interests to your children, grandchildren or other loved ones or charities while you maintain effective control over the assets thereby reducing your taxable estate and the amount of taxes due at your death.
- Centralized Management — The GFN Plan creates centralized management of your assets which will be unaffected by the event of the death of you or your spouse. This is accomplished by setting up your corporation as the general partner which will continue to manage your family limited partnership despite the death or disability of any of its shareholders.
- Minimize Probate — The GFN Plan minimizes the time and expense involved in probating your estate by consolidating many diverse assets into two assets: an interest in your family limited partnership and the shares of stock in your corporate general partner. TheGFN Plan is not a substitute for a will but it reduces the assets that are controlled by your will and minimizes involvement of the probate court.
- Cure Title Defects — In the process of transferring your assets to your family limited partnership, it can be determined, when you are alive, if there are any title defects which need to be corrected. This can be a critical issue for valuable properties if it is not caught on a timely basis with a GFN Plan review.
- Create Order — The GFN Plan will clarify, prioritize and systemize your entire estate by:
- Compiling all of the essential information regarding your estate into one, complete source by filling out the GFN Planquestionnaires with assistance from your GFN Representative.
- Reorganizing your financial paperwork into a single, comprehensive file; and
- Transferring your diversified investment portfolio into a single, easier to manage asset — your family limited partnership.
Asset Preservation
Today, if a third-party obtains a judgment against you or your spouse, the majority of your assets are subject to seizure. Your creditors can pick and choose what they want and you can be sure they are going to take the best and the most liquid assets first. Without a GFN Plan, only a small amount of your family’s assets are exempt from seizure under state and federal laws.
We also offer many other plans which, when integrated with the GFN Plan, provide strong insulation from creditors. After implementing the GFN Plan, the majority of your assets are owned by your family limited partnership and are safe from seizure by creditors. With the protection of the GFN Plan, a third-party creditor can seize very little of your estate. Their only recourse is to obtain a charging order from the court. The charging order can have disastrous income tax consequences for the creditor because they must now pay the income tax attributable to your share of the taxable income, without any ability to obtain the income. As a result, a charging order is almost never used.
Charitable Giving
Most people have charitable intent. However, the loss of control of the assets prohibits most individuals from maximizing their lifetime charitable giving.
The GFN Plan provides the following charitable giving advantages for your family:
- By transferring the family business, ranch, farm or other family asset into a family limited partnership, a gift of a limited partnership interest to a charitable organization can be made while the family business, ranch, farm, or other family assets remain intact to produce income for the benefit of all partners;
- As a limited partner, the charitable organization has no say in the daily management of the family limited partnership so the family business, ranch, farm or other family asset may be operated the same as before;
- The value of the limited partnership interest given to the charitable organization can be taken as an immediate tax deduction on your current year’s income taxes. In some cases, this may provide you liquidity that you previously did not have; and
- You have optimized your potential to obtain a reduction in the valuation of your taxable estate by requiring the vote of all limited partners and all shareholders of the corporate general partner (including the charitable organization) to liquidate the entity.
How Do You Implement a GFN Plan?
Your GFN Representative is a member of a selective network of highly skilled and trained professionals that have been individually chosen to help you design and implement your own GFN Plan. Your GFN Representative leads a team composed of an attorney, accountant and an insurance and investment professionals working together for your benefit to maximize results.
Implementation of a GFN Plan involves the transferring of title of your assets into two new legal entities — a specially designed limited partnership and a corporation. The only limitations to the GFN Plan are that the person implementing the plan must be financially solvent in accordance with generally accepted accounting principles both before and after implementation and the purpose of the transfer must not be to hinder, delay or defraud creditors.
Your net worth, after implementing a GFN Plan, will stay substantially the same. For example, if 35% of your corporation is owned by your children and a non-family member of charity, your total net worth will only change $3,500 for every $1 million contributed to your family limited partnership. That is because your corporation, of which you and your spouse are directors for life, serves as the general partner of your family limited partnership and owns 1% of your assets.
How Do You Maintain Control?
To maintain effective lifetime control over your corporation, you, your family members and other shareholders enter into a carefully drafted shareholders’ agreement. This agreement contractually binds all shareholders to vote for you as directors during your lifetime. It pre-manages the actions to be taken in the event of death, divorce, disability, etc. The shareholders’ agreement also provides a purchase option allowing your corporation and other family members the right to purchase your stock from a third-party creditor at a pre-determined purchase price. This total lifetime control of your assets, which the GFN Plan provides, stands in stark contrast to other preservation strategies, such as an irrevocable trust, which often requires the total relinquishment of control in order to be effective.
How Do You Get Assets Out Of Your Family Limited Partnership?
After implementing your GFN Plan, there are four basic ways to obtain assets from of your family limited partnership:
- First, pro-rata distributions may be paid from your family limited partnership to the partners. Distributions will flow from the assets of the family limited partnership, 99% to you, your spouse and anyone else you choose as a limited partner and 1% to your corporation.;
- Second, your family limited partnership may pay a management fee to your corporation. The amount of the management fee is set by you and the terms of this fee can be very flexible. Monies from that fee can be used to pay a variety of your corporate expenses, such as salaries and employee benefits to you as the employee.;
- Third, your family limited partnership can loan money to you, your spouse or other family members. Repayment of the loan is effectively repayment to yourself.;
- Fourth, your GFN Plan is totally revocable by you, your fellow shareholders and limited partners at any time. In the unlikely event that you ever need to dismantle and revoke the family limited partnership and corporate general partner, it simply takes a unanimous vote to do so. If this happens, title of your assets can be transferred back to your direct ownership usually without penalties or tax consequences.
Is The GFN Plan Right For You?
Here are several important reasons to consider a GFN plan.
- Substantially reduce the amount of income taxes you are paying.
- Confidence in the knowledge that you will leave the majority of your taxable estate to your family rather than to the IRS.
- Protection of your assets from ever expanding liability judgments that occur in today’s litigious society.
- The flexibility to make charitable tax deductions while keeping your assets intact, and under your control.
If these are benefits you would like for your estate, consult with a GFN Representative. Our GFN Representatives have been selected and trained to analyze your income tax, estate planning, asset preservation and charitable giving needs and will help you best meet your overall tax planning objectives.
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