James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comKey Contacts
Back
Facebook’s Initial Public Offering (IPO) received a great deal of attention, especially after the price of its stock dropped shortly after its first day of trading. The decline in price dominated the news for weeks. While driving to the office this week, I listened to Bloomberg report that Facebook’s stock price hit $50 a share on September 26, 2013. The Bloomberg report validated the planning strategies undertaken by the Facebook insiders and demonstrates that the timing of a transfer may yield incalculable benefits.
On June 4, 2012, I wrote about a Facebook insider who expatriated from the U.S. to Singapore. Mr. Eduardo Saverin relinquished his U.S. citizenship in September 2011, months before the public offering on May 18, 2012. The act of expatriation causes the departing United States citizen to recognize gain on a deemed sale of all of his assets. Assuming a market value of $25 per share at the time of expatriation, the timing of Mr. Saverin’s departure appears to have saved him hundreds of millions of dollars in income and estate taxes. Given that the IPO price was not set and the sluggish economy, the figure actually used may have been lower than my estimate. After all, we were coming out of a recession and there were no other comparable transactions in the market. Any estimate of value in 2011 was tempered by doom and gloom of a moribund economy and an uninspired or non-existent IPO market. The timing of Mr. Saverin’s departure worked to his advantage.
On June 11, 2012, I wrote about Grantor Retained Annuity Trusts (GRAT) and the various strategies one might put in place to hedge a decline in price. The news was filled with stories of Facebook insiders who remained U.S. citizens and utilized GRATs or rolling GRATs (as described in my blog on July 25, 2012). When we look back to May 2012, these insiders saved themselves an incredible amount of money. In our gift tax system, we must value the gift upon the date of transfer. The stock price has nearly doubled in value and approximately one-half of an insider’s wealth may have been moved outside of the transfer tax system. Assume the transfer to the GRAT is valued at $26 per share and the value rises to $50, this means that $24 per share passes to the remainder without being subject to gift tax.
Corporate insiders and knowledgeable investors anticipate when stock and asset values will rise. In today’s slow or low growth economy, each day brings us closer to more normal economic activity and increasing asset values. Thus, it appears that we should be able to anticipate escalating asset prices in the coming years. Now would be an ideal time to transfer appreciating assets to a GRAT in order to lock in the lower values for purposes of the computations required by the transfer tax system.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Author: Jesse M. Dimitro
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Author: Jesse M. Dimitro
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Author: Scarinci Hollenbeck, LLC
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
Author: Dan Brecher
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
Author: Ronald S. Bienstock
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
Author: Patrick T. Conlon
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Facebook at 50 (Dollars A Share)
Author: James F. McDonough
Facebook’s Initial Public Offering (IPO) received a great deal of attention, especially after the price of its stock dropped shortly after its first day of trading. The decline in price dominated the news for weeks. While driving to the office this week, I listened to Bloomberg report that Facebook’s stock price hit $50 a share on September 26, 2013. The Bloomberg report validated the planning strategies undertaken by the Facebook insiders and demonstrates that the timing of a transfer may yield incalculable benefits.
On June 4, 2012, I wrote about a Facebook insider who expatriated from the U.S. to Singapore. Mr. Eduardo Saverin relinquished his U.S. citizenship in September 2011, months before the public offering on May 18, 2012. The act of expatriation causes the departing United States citizen to recognize gain on a deemed sale of all of his assets. Assuming a market value of $25 per share at the time of expatriation, the timing of Mr. Saverin’s departure appears to have saved him hundreds of millions of dollars in income and estate taxes. Given that the IPO price was not set and the sluggish economy, the figure actually used may have been lower than my estimate. After all, we were coming out of a recession and there were no other comparable transactions in the market. Any estimate of value in 2011 was tempered by doom and gloom of a moribund economy and an uninspired or non-existent IPO market. The timing of Mr. Saverin’s departure worked to his advantage.
On June 11, 2012, I wrote about Grantor Retained Annuity Trusts (GRAT) and the various strategies one might put in place to hedge a decline in price. The news was filled with stories of Facebook insiders who remained U.S. citizens and utilized GRATs or rolling GRATs (as described in my blog on July 25, 2012). When we look back to May 2012, these insiders saved themselves an incredible amount of money. In our gift tax system, we must value the gift upon the date of transfer. The stock price has nearly doubled in value and approximately one-half of an insider’s wealth may have been moved outside of the transfer tax system. Assume the transfer to the GRAT is valued at $26 per share and the value rises to $50, this means that $24 per share passes to the remainder without being subject to gift tax.
Corporate insiders and knowledgeable investors anticipate when stock and asset values will rise. In today’s slow or low growth economy, each day brings us closer to more normal economic activity and increasing asset values. Thus, it appears that we should be able to anticipate escalating asset prices in the coming years. Now would be an ideal time to transfer appreciating assets to a GRAT in order to lock in the lower values for purposes of the computations required by the transfer tax system.