Not too long ago the taxation and accounting world had a new star in Mark Zuckerberg, the wunderkind behind Facebook. Why? Because his unparalleled control over the company was about to create the biggest tax bill ever when the company went public and his stock became publicly valued.
Indeed, the taxation and accounting world can be rather morbid in that regard, but at least for Zuckerberg there is some good news that has come out of the woodwork. Tax or no taxes, he has saved a great deal through forethought and proper estate planning.
Certainly it’s unusual to meet anyone who begins their estate planning at age 25, but Mark Zuckerberg and his partner in business, Dustin Moskovitz, did just that. As reported in a recent article from Deborah Jacobs at Forbes, the pair had the foresight to set up their private stock up with a special kind of trust before the true boom in value. As a result, they locked in that lower value and locked out those incredible taxes.
As Jacobs estimates in her article, the pair shifted more than $185 million into what’s often known as zeroed-out GRATs. In somewhat more plain English, a GRAT is a Grantor Retained Annuity Trust in which the rate of appreciation exceeds the rate of interest payouts, thereby securing the excess amount from taxation for the beneficiaries of the GRAT. In this case, the "excess amount" was the increase in value of Zuckerberg's and Moskovitz' Facebook stock that resulted from the feeding frenzy that happened when the public was allowed to buy Facebook shares.
Sometimes the young do have something to teach their elders, and in this case the crew over at Facebook serves as an incredible example of what has been an incredible technique.
For more information and math on Zuckerberg and his partners check out the original article. Also, if you’re interested in learning more about GRATs, then there’s no time like the present to investigate whether you should create your own.
Not only is the GRAT most advantageous when an economy is set to rebound, but the process itself is in the sights of many new budget and taxation plans by the current administration. (Translation: This opportunity might not be around much longer!)