The following is an excerpt from Tax Report | May 11, 2012 | WSJ.com |
Investors are focusing on Facebook’s FB 0.00% offering price as the company prepares to go public as soon as next week.
Tax specialists are paying attention to something else: how half a dozen of the firm’s luminaries, including founder Mark Zuckerberg, appear to be using a perfectly legal maneuver called a grantor-retained annuity trust, or GRAT, to avoid at least $200 million of estate and gift taxes on their own Facebook shares.
“I’m not surprised the Facebook insiders have chosen to use GRATs,” says John Bergner, a gift-and-estate tax expert at the Winstead law firm in Dallas. He calls the strategy “an excellent way to shift wealth to others at little or no tax cost and with minimal legal and economic risk.”
Facebook’s prospectus cites eight separate “annuity trusts” set up by insiders Dustin Moskovitz, Sean Parker, Sheryl Sandberg, Reid Hoffman, Michelle Yee (Mr. Hoffman’s wife) and Mr. Zuckerberg over the past four years. All told, these trusts hold about 22 million shares that will be worth more than $690 million if Facebook goes public at $31.50 a share, the middle of its projected range.
Spokesmen or representatives for the six shareholders declined to comment on these trusts, or were unavailable. But Mr. Bergner and others—including Howard Zaritsky, a lawyer and estate expert in Rapidan, Va.—say they feel safe assuming the “annuity trusts” are GRATs, based on their knowledge of the territory and the language in Facebook’s prospectus.
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