In case you have been under a rock or in a bubble the last few days, Facebook went public last week in what some are calling the “biggest IPO cross in the history of mankind.” All hyperbole aside, there are literally thousands of new millionaires and plenty of new billionaires.
But back in 2008 Mark Zuckerberg, then 24, put $3,023,128 worth of Facebook stock into a grantor retained annuity trust. According to this Forbes article, the move involved putting pre-IPO stock into a special kind of trust that exploded in value when the company went public. In the process Zuckerberg and Moskovitz, together shifted $185 million to trust beneficiaries without having to pay gift tax. Sheryl Sandberg, Facebook’s COO, who was then 39, used the same strategy to transfer at least $19 million tax-free.
The tax manuever is completely legal and is known as a “GRAT”, or grantor retained annuity trust.
Here’s how these trusts work: the person setting up the trust, known as the grantor, puts company shares into a short-term irrevocable trust and retains the right to receive an annual income stream, known as an annuity, for a preset time (for this type of asset, it is typically 5 to 15 years). If the grantor survives that period – a condition for this tool to work – any property left in the trust when the annual payments end passes to family members or to a trust for their benefit (they are the remainder beneficiaries).
As you can see, you don’t have to be an internet billionaire or even all that old to start planning for your family’s needs. Please feel free to call JamisonMoneyFarmer PC if you wish to discuss your estate planning needs.