Case Study – Anthony and Dina
Anthony and Dina Donfrio are 55 and 52 respectively. They have been married for 30 years, and have six children. They live a comfortable lifestyle, spending about $850,000 a year after taxes, and their annual income exceeds their spending. Currently, they pay just under $10M a year in income taxes, with that number expected to climb.
Anthony and Dina have assets worth approximately $200M and therefore have a substantial estate and income tax exposure.
Anthony owns and operates a company, Donfrio Construction, which he acquired several years ago in a purchase agreement with his parents. This business has continued to grow and produce significant income, which has caused some discomfort between Anthony and his brother.
Anthony’s brother is not involved in the business and the family has always had to find different ways to equalize his inheritance while Anthony’s business has flourished. At the moment, Anthony and Dina do not intend to pass the company on to any of their six children.
Anthony and Dina are also very charitable. They make significant annual gifts to their favorite causes and would like to continue increasing those gifts since their annual cash flow allows it.
Most of Anthony and Dina’s wealth is currently tied up in Donfrio Construction. Valued at approximately $192M, this asset accounts for over 95% of their estate value. Net earnings for the company, after taxes and distributions, vary between $10M and $20M per year, depending on the general economy of the country.
Anthony and Dina have also formed a captive insurance company. The underwriting profits from the captive are split with Anthony’s brother in an attempt to help to provide some equalization.
Client Goals and Concerns
The Donfrios’ primary planning goals are to:
- Ensure that they have sufficient funds to live on for the rest of their lives (approximately 850,000/yr. after taxes and gifts)
- Ensure that in the event of Anthony’s untimely death, sufficient cash is available for Dina
- Provide for increased charitable giving during life and a significant charitable gift of 75% of their estate at death
- Provide an inheritance to their children of 25% of their estate
- Reduce income taxes
- Reduce or eliminate estate taxes
As with all our clients, integrated planning solutions vary from client to client. This situation used four different solutions, which were designed to meet all the client’s goals and mitigate as much risk as possible. We will look at one of the solutions used in this client’s plan.
Family Limited Liability Company
With significant cash building up inside of Donfrio Construction, Anthony wanted to begin distributing some of the excess cash out of the company. It made sense, for asset protection reasons, to have the cash held in a limited liability company.
This newly formed entity would help provide asset protection and ensure that in the event that something were to happen to Anthony, Dina would have easier access to cash that was distributed from the construction company. This strategy could also be coupled with future asset protection trusts, creating another layer of protection.
Annual Meetings and Maintenance
Our annual maintenance program helps Anthony and Dina to stay on track with monitoring their cash flow and lifestyle needs as well as the choices they made in the planning process.
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