EFTA00694058.pdf

From: "McCaffrey, Carlyn" < To: "Jeffrey Epstein (jeevacation@umail.com)" <Jeevacation02,gmail.com> CC: "Kirschner, Elyse" <II Subject: FW: Shelf GRATs Date: Thu, 13 Jun 2013 14:21:10 +0000 Dear Jeffrey, I thought you might be interested in seeing this email we recently shared with the family office of one of our clients. Best, Carlyn Carlyn S. McCaffrey I Partner McDermott Will & Emery LLP I 340 Madison Avenue, New York, NY 10173 From: McCaffrey, Carlyn Sent: Sunday, June 09, 2013 4:23 PM To: Cc: Kirschner, Elyse Subject: Shelf GRATs Dear [Head of Family Office], In view of [Client's] concern that interest rates will begin rising soon and that GRATs will, therefore, be less desirable, I thought you might like to read about Shelf GRATs. Here are links to two articles that discuss them. A shelf GRAT is a GRAT that's structured for a longer term than ultimately desired and funded with cash or other safe, low- volatile assets. At some future time the grantor expects to transfer an asset that he believes will appreciate substantially in exchange for the GRAT's conservative investment. Alternatively, he may anticipate that the GRAT will have an opportunity in the future to make such an investment. Suppose, for example, that [Client] thought that in another two years, he was going to have the opportunity to purchase asset X for $50 million. Xis a speculative investment that [Client] hopes will double in value but he recognizes that it might not be successful. He wants to provide funds to the existing children's trusts to enable them to participate in the investment. He doesn't want to wait two years to provide the financing because he thinks interest rates will be at 6% in 2 years. He could make a 9 year loan of $50 million to the trusts at a current rate of .95% with the expectation that the trustees would invest the funds conservatively until the time came for them to invest in asset X. The problem with this approach is that if the trusts use the $50 million to make the investment and the investment is a failure, they will owe [Client] $50 million and will have little if anything to show for it. EFTA00694058 As we have discussed, the GRAT is the vehicle of choice to use for investments when there is a significant risk of loss. But [Client] doesn't want to wait two years to fund a GRAT, because he thinks the hurdle rate will then be 6%. The shelf GRAT approach is a solution. [Client] would fund a 5 year GRAT with $75 million. The GRAT would be required to make the following payments to him: 1 $ 10,489,131.15 2 $ 12,586,957.38 3 $ 15,104,348.86 4 $ 18,125,218.63 5 $ 21,750,262.35 The present value of this stream of payments is about $75 million The trustees would invest in a conservative way. At the end of year 2, the GRAT trustees would have about $50 million to make the planned for investment. With the first two years of payments out of the way, the shelf GRAT is effectively a three year GRAT with a hurdle rate that reflects the low current rate of return. If the anticipated investment never materializes, nothing has been lost. The assets in the shelf GRAT will return to [Client] and the GRAT will end at the end of the 5 year period. Please let us know if you'd like to discuss this further. Best, Carlyn Carlyn S. McCaffrey I Partner McDermott Will & Emery LLP I 340 Madison Avenue, New York, NY 10173 IRS Circular 230 Disclosure: To comply with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained herein (including any attachments), unless specifically stated otherwise, is not intended or written to be used, and cannot be used, for the purposes of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter herein. This message is a PRIVILEGED AND CONFIDENTIAL communication. This message and all attachments are a private communication sent by a law firm and may be confidential or protected by privilege. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution or use of the information contained in or attached to this message is strictly prohibited. Please notify the sender of the delivery error by replying to this message, and then delete it from your system. Thank you. Please visit for more information about our Firm. EFTA00694059