š§© Step 1 ā Start with a $10M LLC
Assume:
- Fair market value: $10,000,000
- You recapitalize into 30% voting / 70% nonāvoting
- You sell the 70% nonāvoting to the IDGT
š§© Step 2 ā Apply valuation discounts
Typical combined discount (DLOC + DLOM): 30%
So the 70% interest is appraised at:
10,000,000 * 70% =7,000,000
Apply 30% discount:
7,000,000 * (1-30% )=4,900,000
ā The trust buys $7M of value for $4.9M
This discount is a legal, IRSārecognized estateāplanning benefit.
š§© Step 3 ā The IDGT gives you a promissory note
Assume:
- AFR (longāterm) = 4%
- 15āyear interestāonly note with balloon payment
Annual interest:
4,900,000 * 4% =196,000
The trust pays you $196k/year.
š§© Step 4 ā Assume the LLC grows at 8% per year
This is conservative for a private business or real estate LLC.
After 15 years:
10,000,000 * (1.08)^15 ~= 31,720,000
So the LLC grows from $10M ā $31.7M.
Your retained 30% grows to:
31,720,000 * 30% =9,516,000
The trustās 70% grows to:
31,720,000* 70% =22,204,000
š§© Step 5 ā Trust pays off the balloon note
At the end of 15 years, the trust owes you:
- Principal: $4.9M
- Youāve already received 15 years of interest: $2.94M
The trust pays the $4.9M balloon using:
- LLC distributions
- refinancing
- or partial sale of assets
After paying the note, the trust still owns:
22,204,000-4,900,000=17,304,000
ā $17.3M is now outside your estate.
š§© Step 6 ā Estate tax savings
Estate tax rate: 40%
Savings:
17,304,000 * 40% =6,921,600
ā You save about $6.9 million in estate tax.
Abies Law Firm 