|
|
 |
|
| Trusts |
Estate Tools for the Trusting
Thomas M. Kostigen
02/02/2004
|
The size of the discount varies with the estate plan and the individual circumstances of the owner. "It’s proven that the longer the duration, the higher the discount," says Levine. Under five years, the discount is marginal, according to Hamilton. "There is no hard and fast rule. We would say no less than five years. Certainly there is a limit on the other end, too; from 10 years on, there isn’t a much bigger discount," he says.
To increase the discount, some estate planners have taken to stacking RMAs within a family limited partnership. Here, the general partner (the owner of the estate) assigns 99 percent of the shareholding in the limited partnership to others, keeping 1 percent for herself. Because of the lack of control, an automatic discount to the value of assets used to fund the LP—say 35 percent—would be granted. If those assets were to be placed in an RMA or series of RMAs within the limited partnership, the additional control restrictions could result in further discounting, possibly increasing the discount by another 25 percent. Fox and Hamilton wrote a paper analyzing a family limited partnership funded with $2.75 million in assets. Stacking an RMA within the partnership shaved nearly $500,000 more off the appraised value.
The Long Goodbye
The product is still quite new, and its backers admit it remains a tough sell. David Sennett, a private banker with Wachovia in Deerfield, Fla., is one of the few bankers to have put clients into an RMA (the firm has sold about a dozen overall). Sennett says his sales pitch is keyed to the investment advantages. "Under that strategy you would let us handle your assets for five years without your control. In return, we would use our investment management technology to gain any potential tax advantages and any potential discounts for your lack of control and access." It is at this juncture that Sennett says lots of potential RMA clients walk away. "We do get hammered on [lack of control]," he admits.
|
|
|
|
|
|
|
