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Page 1: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Estate and Transition PlanningWorkshop for Agricultural

Producers

Good Morning!

Estate and Transition PlanningWorkshop for Agricultural

Producers 1

Good Morning!Please fill out the Pre-Workshop Demographics Form

- and –Start working on the Estate and Transition PlanningObjectives and Vocabulary Matching Exercise.

Page 2: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Thank you to our partners forassistance in funding this program

Estate and Transition PlanningWorkshop for Agricultural

Producers 2

Page 3: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Today’s Presenters

Dr. Wayne Hayenga, J.D.Professor Emeritus, Agricultural Economist & Attorney(979) [email protected]

Estate and Transition PlanningWorkshop for Agricultural

Producers

Dr. Jason Johnson Dr. Blake BennettTexas A&M AgriLife Extension Economists

Stephenville Dallas(254) 968-4144 (972) 952-9273

[email protected] [email protected]

Page 4: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Purpose of Today’s Workshop

• Introduction to Estate, Retirement,and Transition planning issuesrelevant to agricultural producers

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Establish an outline of strategiesand procedures to consider whendeveloping or updating yourEstate/Retirement/Transition plan

4

Page 5: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

The Goals for Today’s Workshop

You leave with knowledge andconfidence to assist you to . . . .

• Compile & review your owninformation….

Estate and Transition PlanningWorkshop for Agricultural

Producers

information….

• Communicate an outline to yourprofessional team…. and

• Create or modify a transition /estate plan that is right for yourcircumstances.

5

Page 6: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Estate and Transition PlanningWorkshop for Agricultural Producers

Workshop Agenda

Estate and Transition PlanningWorkshop for Agricultural

Producers 6

Workshop Agenda• Estate Planning Basics• Lunch and Case Study Discussion• Estate Planning Basics (continued)• Retirement Planning Basics• Transition Planning Basics

Page 7: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Estate Planning Essentials• Estate Planning Goals

• A Lawyer’s View of Your Farm/Ranch

Estate and TransitionPlanning Workshop forAgricultural Producers

Estate and Transition PlanningWorkshop for Agricultural

Producers

• A Lawyer’s View of Your Farm/Ranch

• Laws of Estate Planning

• Estate Planning Documents

• Tax Planning Issues

• Dealing with Incapacity

7

Page 8: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Common Estate Planning Goals

• Minimize taxes at death.

• Minimize probate costs and delays.

• Conserve property during life and afterdeath in accordance with goals.

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Conserve property during life and afterdeath in accordance with goals.

• Provide financial security:

Parents in retirement.

Family member with a disability.

8

Page 9: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Key Areas of Concern• Guardian for minor children or adult children with

special needs.

• Providing income for a surviving spouse or children.

• Management of estate property, assets, investments.

• Minimization of probate and settlement expenses.

• Minimization of estate and inheritance taxes.

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Minimization of estate and inheritance taxes.

• Flexibility.

• Liquidity for necessary and unavoidable expenses.

• Gift planning.

• Continuation and/or transfer of the business.

9

Page 10: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Family Considerations Triggering aReview of Estate Plans and Objectives

A. Family changes

B. Divorce

Estate and Transition PlanningWorkshop for Agricultural

Producers

C. Second marriage

D. Special needs

10

Page 11: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Estate Planning Goal Setting• Take care of #1

• Take Care of Family

• Business Succession Planning / Control

• Taxes

Estate and Transition PlanningWorkshop for Agricultural

Producers 11

• Taxes

• Decision-making

Page 12: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Taking Care Of ….• #1 Do we need to say more?

• Spouse• How Good?• How Long?

– Till wedding bells ring again?– Till he or she has some fun?

Estate and Transition PlanningWorkshop for Agricultural

Producers 12

– Till he or she has some fun?

• Grandpa’s Farm

• Children and Grandchildren – share and share alike?– Fair vs. Equitable

• Parents ~ Parent-in-Laws

Page 13: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Children = or ≠ In-laws

• Do children include in-laws?

• The in-laws now or

later when we read the will?

Estate and Transition PlanningWorkshop for Agricultural

Producers 13

later when we read the will?

Page 14: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

A Lawyer’s View of Your Farm/Ranch

• Operations

– Crops, Cattle, operating money, equipment, etc

• Land

– Surface to produce crops, grass and feed

Estate and Transition PlanningWorkshop for Agricultural

Producers 14

– Surface to produce crops, grass and feed

• Minerals

– Oil, gas, and other minerals

• Other

– Wind, easements, gravel, recreation, water

Page 15: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Ownership of Your Farm/Ranch

• Operations

– Personally

– LLC

– S Corp

Estate and Transition PlanningWorkshop for Agricultural

Producers 15

– S Corp

– Partnership – general

– Partnership – limited

– C Corp

Page 16: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Ownership of Your Farm/Ranch

• Operating Company

Little Value, High Risk, Lots of Decisions

– Corporation or LLC

Estate and Transition PlanningWorkshop for Agricultural

Producers 16

– Corporation or LLC

• Limit liability, decision making to owners

Leases Land FROM Land Owning Entity

Page 17: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Ownership of Your Ranch

• Surface or Land

High Value, Little Risk, Few Decisions– Personally

– Trust

Estate and Transition PlanningWorkshop for Agricultural

Producers 17

– Trust

– Limited Partnership– Little risk for Limited Partners

– Decisions in hands of General Partners

Land Leased TO Operating Company

Page 18: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Ownership of Your Ranch

• Minerals

– May want to add to surface ownership

– May want to use Dynasty Trust

Estate and Transition PlanningWorkshop for Agricultural

Producers 18

– May want to use Dynasty Trust

– May want to do something else

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Sharing Ownership

• Co-owners

• Partners– Limited and General Partners

Estate and Transition PlanningWorkshop for Agricultural

Producers 19

– Limited and General Partners

• Shareholders of Corporations

• Members of Limited Liability Companies

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Protections with Shared Ownership

• Buy-Sell Agreements

• Restricted Stock, etc.

• But, what happens when an outsider gets

Estate and Transition PlanningWorkshop for Agricultural

Producers 20

• But, what happens when an outsider getsownership?

– Buy him/her out - but what if no cash?

– Will they be an owner or assignee?

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Shared Ownership

• Look for the way out before getting in the deal

Estate and Transition PlanningWorkshop for Agricultural

Producers 21

Page 22: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Sources of Income

• Traditional Production: Crops & Livestock

• Wildlife hunting

• Wildlife looking

• Recreation

Estate and Transition PlanningWorkshop for Agricultural

Producers 22

• Recreation

• Water

• Gravel

• Oil, gas, minerals

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Sources of Income

• Country living

• Utility towers

• Wind

• Easements

Estate and Transition PlanningWorkshop for Agricultural

Producers 23

• Easements

• Signs

• Disposal wells

• Coal

Page 24: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Sources of Income

• Rocks

• Trees

• Environmental mitigation

• Other -

Estate and Transition PlanningWorkshop for Agricultural

Producers 24

• Other -

• Other -

• Other -

Page 25: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Laws of Estate Planning

• Property Ownership

It’s Ours - Community Property

It’s Mine – Separate Property

Estate and Transition PlanningWorkshop for Agricultural

Producers 25

• It’s all “community” unless one can prove it is“separate”

Page 26: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Laws of Estate Planning

• Separate Property is– Owned before marriage– Acquired by Gift or Inheritance

• Can change from Community to Separate

Estate and Transition PlanningWorkshop for Agricultural

Producers 26

• Can change from Community to Separate• Can change from Separate to Community

tax savings, equalize estates, be nice, and/or bestupid

Page 27: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Four Ways to Pass Property

• Contract

Retirement plans, Life insurance

• Operation of Law

Joint Tenancy with Survivorship, POD

Estate and Transition PlanningWorkshop for Agricultural

Producers 27

Joint Tenancy with Survivorship, POD

• Trust

If Trust is funded

• Probate

Testate, Intestate

Page 28: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Questions• Who do you want to get into your safety

deposit box? Is their name on the card?

• Does your will/trust provide for designatingpersonal items?

Estate and Transition PlanningWorkshop for Agricultural

Producers

personal items?

• Where is your most recent will located?

• Who needs to know your plan? Why?

• Have you compiled all critical information inone place and who knows where it is?

28

Page 29: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

8 Documents to ConsiderA. Will

– Names Executor

– Passes Property to heirs

B. Trust – Revocable Living– Can manage your property while mentally or physically

Estate and Transition PlanningWorkshop for Agricultural

Producers

– Can manage your property while mentally or physicallydisabled

– Can change while competent

C. Trust – Irrevocable Living– Same as above, but can not change

– (Next marriage? Abusive/aggressive family member?)

29

Page 30: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

8 Documents to Consider (Cont.)

D. Durable General Power of Attorney

– To manage business affairs if you cannot

E. Guardian if Needed

– Select the person to be a guardian if needed

Estate and Transition PlanningWorkshop for Agricultural

Producers

– Select the person to be a guardian if needed

– Prevent anybody you do not want to be in chargeof business/personal matters

– (Next marriage? Abusive/aggressive familymember?)

30

Page 31: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

8 Documents to Consider (Cont.)

F. Directive to Physicians

– If no quality of life left, remove life support

G. Medical Power of Attorney

– Allows someone else to make medical decisions if

Estate and Transition PlanningWorkshop for Agricultural

Producers

– Allows someone else to make medical decisions ifyou are unable to communicate

H. HIPPA Information Release

– Allows somebody else to obtain medicalinformation

31

Page 32: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Basic Will

A. Payment of debts, expenses

B. Payment of taxes

C. Disposition of personal property

D. Disposition of other property

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. Disposition of other property

-residuary clause

32

Page 33: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Basic Will

E. Selection of executor

Independent?

Without bond?

Estate and Transition PlanningWorkshop for Agricultural

Producers

F. Selection of Trustee

33

Page 34: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Selection of ExecutorExecutor’s Main Duties

1. Collect property2. File reports3. Distribute property

– (manage estate for short time)

Estate and Transition PlanningWorkshop for Agricultural

Producers

– (manage estate for short time)

Executors Can Hire Professional Help1. Attorney2. Accountant3. Any others

34

Page 35: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

A Trust

• An arrangement whereby, a Trustee holds

legal title to property for a Beneficiary for a

purpose as defined by a Settlor

Estate and Transition PlanningWorkshop for Agricultural

Producers 35

Page 36: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

A Trust Is…

• A Management Tool

– Long time control of property

– A look back at goals

Estate and Transition PlanningWorkshop for Agricultural

Producers 36

• A Separate Taxpayer when Irrevocable

– Separate income and deductions

– Trust gets a deduction for payments to beneficiaries

Page 37: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Types of Trusts

• Irrevocable

• Revocable

• Testamentary

• Living

Estate and Transition PlanningWorkshop for Agricultural

Producers 37

• Living

Page 38: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Extra Special Needs for Trusts

A. 16, 14, 4

B. Second marriage children

C. Step-children

D. Long-term illness

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. Long-term illness

E. Senility

F. Tax Planning

38

Page 39: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Extra Special Needs for Trusts

G. Property in 2 or more states

H. “Spendthrift” children

I. “Well off” children

J. Business Property

Estate and Transition PlanningWorkshop for Agricultural

Producers

J. Business Property

K. “Shared” ownership property

L. Successive beneficiaries

M. Train Trustees

39

Page 40: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Special Trust Provisions

A. Income sprinkling

B. Use of principal

C. Power of beneficiary to withdraw principal

D. Beneficiaries with disabilities

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. Beneficiaries with disabilities

E. Anti in-law

40

Page 41: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Special Trust Provisions

F. Cost cutting

G. Inflation and recession-proofing

H. Power to change Trustee

Estate and Transition PlanningWorkshop for Agricultural

Producers

H. Power to change Trustee

I. Hold-Back

41

Page 42: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Trustees’ Main Duties

A Trustee is a Fiduciary

A. Get more money or property

B. Invest money – manage property

Estate and Transition PlanningWorkshop for Agricultural

Producers

B. Invest money – manage property

C. Spend money as directed

(value judgments in spending)

42

Page 43: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Trustee SelectionA. “The Adjectives”

1) Ability 5) Durability

2) Integrity 6) Experience

3) Judgment 7) Understanding

4) Solvency 8) Responsiveness

Estate and Transition PlanningWorkshop for Agricultural

Producers

4) Solvency 8) Responsiveness

B. Fees

C. Corporate or Individual Trustee

D. Successor Trustee

E. Ways to Change Trustee

43

Page 44: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Problem: Can the TrusteeMANAGE the Property?

A. Do you have unusual property?

B. What may be normal to you may be

Estate and Transition PlanningWorkshop for Agricultural

Producers

B. What may be normal to you may be

unusual to Trustee

44

Page 45: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Trustee Fee

A. Often based on a “flat fee” plus a small % ofassets in the trust

B. Additional costs for accepting, distributionsfrom trusts, termination

Estate and Transition PlanningWorkshop for Agricultural

Producers

from trusts, termination

C. Google “trustee fee schedule”

D. Family members may charge, or may notcharge

E. Put fee schedule in document???

45

Page 46: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Estate Planning Tax Issues

• Estate Taxes• Gift taxes• Generation Skipping Taxes• Income Tax• Social Security Tax

Estate and Transition PlanningWorkshop for Agricultural

Producers 46

• Social Security Tax• State Tax

– Income– Business– Inheritance

Page 47: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Your Taxable Estate

A. All separate property

B. Half of community property

C. Gifts of life insurance made within 3years of death

Estate and Transition PlanningWorkshop for Agricultural

Producers

years of death

D. Transfers with a retained life estate

E. Transfers taking effect at death

F. Transfers which can be revoked

47

Page 48: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Your Taxable Estate (Cont.)

G. Annuities payable to others

H. Powers of appointment without

restrictions

I. Proceeds of life insurance

Estate and Transition PlanningWorkshop for Agricultural

Producers

I. Proceeds of life insurance

J. Transfers for insufficient consideration

K. Previous marital deduction property

48

Page 49: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Property OwnershipSEPARATEAll owned before marriageProperty inherited or received by gift

COMMUNITYProperty from fruits of marriage

Estate and Transition PlanningWorkshop for Agricultural

Producers

Property from fruits of marriageIncome from separate property

PRESUMPTIONAll property is community unless proven otherwiseTitle makes no difference

49

Page 50: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Estate & Gift Tax

is on

Transfer of Dominion

and

Estate and Transition PlanningWorkshop for Agricultural

Producers

and

Control of Property

50

Page 51: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Valuation Rules

A. Date of death or 6 months later

B. Fair market value

C. Special Use Value for Agricultural Land

Estate and Transition PlanningWorkshop for Agricultural

Producers

C. Special Use Value for Agricultural Land1. Value at ag value, not market value

2. Reduce total estate up to $1,000,000+ (indexed)

3. Estate, heir, and property must qualify

51

Page 52: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Estate Tax Deductions

A. Expenses, indebtedness

B. Casualty losses

C. Charitable deduction

D. Marital deduction

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. Marital deduction

52

Page 53: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Estate & Gift Tax Marital Deduction

• Unlimited property transferability betweenspouses

• Sweetheart Wills – “all to my loving spouse……”

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Sweetheart Wills – “all to my loving spouse……”

–OK, unless ……….

53

Page 54: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Lifetime Exemption

• 2014– $5,340,000 indexed up by inflation

• Estate Tax Rate above this amount: 40%• BUT MAY CHANGE

Estate and Transition PlanningWorkshop for Agricultural

Producers

• BUT MAY CHANGE

54

Page 55: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Calendar yearEstate and GST tax death

time transfer exemption

Gift tax lifetime

transfer exemption

Highest estate

and gift tax rates

2001 $675,000 $675,000 60%

2002 $1 million $1 million 50%

2003 $1 million $1 million 49%

2004 $1.5 million $1 million 48%

2005 $1.5 million $1 million 47%

2006 $2 million $1 million 46%

2007, 2008 $2 million $1 million 45%

Estate and Transition PlanningWorkshop for Agricultural

Producers

2007, 2008 $2 million $1 million 45%

2009 $3.5 million $1 million 45%

2010 N/A (taxes repealed) $1 million (not repealed) 35% (gift tax only)

2011 $5 million $5 million 35%

2012 $5.12 million $5.12 million 35%

2013 $5.25 million $5.25 million 40%

2014 $5.34 million $5.34 million 40%

55

Page 56: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Lifetime Exemption:New Concept - PORTABILITY

2nd spouse to die of married couple can useunused exemption of 1st to die if done properly.

A. File estate tax return to preserve election

Estate and Transition PlanningWorkshop for Agricultural

Producers

A. File estate tax return to preserve election

B. Don’t get married again

C. File estate tax return again

56

Page 57: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

PORTABILITY

• Administrative tool, not a planning tool

• Will lose family income tax savings tool

• May lose Social Security tax savings for spouse

Estate and Transition PlanningWorkshop for Agricultural

Producers

• May lose Social Security tax savings for spouse

• Will lose asset protection

57

Page 58: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Paying the Estate Tax

A. Taxes due 9 months after death

(generally)

B. Tax deferral provisions -

Estate and Transition PlanningWorkshop for Agricultural

Producers

B. Tax deferral provisions -

15 year deferral, 2% interest

C. Investment policy

58

Page 59: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Installment Payment of Taxes

A. Closely held business

B. 35% of gross estate

C. 2% interest only for 4 years, then 10-yr payout

D. Amounts up to $1,000,000 estate

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. Amounts up to $1,000,000 estate

(less equivalent exemption)

59

Page 60: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Gifts

• Elements of a gift.– Must have a donor.– Must have a donee (recipient) of the gift.– Must have actual or constructive receipt of the gift.

Gifts must be given free of any restrictions.

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Gifts must be given free of any restrictions.

• Gifts in any amount are not income to the recipient.

• Gifts in excess of $14,000 (2014) per year to any onerecipient will affect the gift tax credit.

60

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Gifts To…

• Spouse - unlimited amount

• Any other person $14,000

• A $5,340,000 gift to whoever

– Give now, reduce future income and appreciation

Estate and Transition PlanningWorkshop for Agricultural

Producers 61

– Give now, reduce future income and appreciation

Why? Why Not?

Page 62: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Double Trust Plan or Married Couples

Common Goals:

A. Maximum benefit to surviving spouse

B. Save estate taxes if possible

Estate and Transition PlanningWorkshop for Agricultural

Producers

B. Save estate taxes if possible

C. Pass on to children

D. Can increase flexibility in planning

62

Page 63: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Double Trust Plan or Married Couples

E. Provide property management for later life

F. Income tax planning for survivor

G. Asset Protection

Estate and Transition PlanningWorkshop for Agricultural

Producers

G. Asset Protection

H. Others

63

Page 64: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

The Double Trust Plan

A. Bypass Trust1. INCOME to spouse, descendants for Health, Education,

Maintenance & Support

2. PRINCIPAL to spouse for Health, Education,Maintenance & Support

Estate and Transition PlanningWorkshop for Agricultural

Producers

Maintenance & Support

B. Marital Trust1. INCOME to spouse – required

2. PRINCIPAL as directed by decease spouse

64

Page 65: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

• Revocable

• Developed so Spouse can be Trustee

• Will obtain “2” estate tax exemptions

• Provides for income tax savings

The Double Trust Plan

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Provides for income tax savings

• Will allow for property management whilementally of physically incapacitated

• Can treat children same or differently

65

Page 66: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Trustee of Double Trust Plan

• Husband and Wife while alive

• Surviving Spouse if competent

• Then can be child, children, other person(s) orbank

Estate and Transition PlanningWorkshop for Agricultural

Producers

bank

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Page 67: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Double Trust Plans Can . . .

A. Provide for Income Tax Savings

B. Provide for Social Security Tax Savings

C. Provide Asset Protection

D. Will defer Tax Bill

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. Will defer Tax Bill

E. May increase Tax Bill

67

Page 68: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Double Trust Plans Can . . .

F. Allow spouse to put assets in Trust

G. Need special provisions for Spouse tobe Trustee

Estate and Transition PlanningWorkshop for Agricultural

Producers

H. Protect against inflation

I. Basis increase with General P/A

68

Page 69: - and – Start working on the Estate and Transition Planning · Estate and Transition Planning Workshop for Agricultural Producers Good Morning! Estate and Transition Planning Workshop

Reducing the Taxable Estate

• Gifts

• Valuation of property

• Ownership of property

• Opportunity shifting

Estate and Transition PlanningWorkshop for Agricultural

Producers 69

• Opportunity shifting

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Property to Give Away

A. Property you won’t miss

B. Property that won’t be sold

C. High basis property

D. Property that will appreciate

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. Property that will appreciate

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Basis Rules• Buy – Cost Less Depreciation• Gift – Donor’s Basis• Inherit – Estate Value

Basis Example: Current Land Value $3,500 / acre

Purchase Price

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Producers 71

Purchase Price$1,000 $3,500 $5,000

Die $3,500 $3,500 $3,500Gift $1,000 $3,500 $3,500*Sell $1,000 $3,500 $5,000*

* gifting or selling to family, 2 year rule

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Limited Partnership Discount

• Discount gift tax value

• Discount estate tax value

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Producers 72

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Limited Partnership Example

$4,000,000 ranch

• Create Limited Partnership

• Last for 75 years

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Producers 73

• Last for 75 years

• Distribute all earnings

• General Partner – An LLC 1%

• Limited Partners – Former Owner(s) 99%

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Limited Partnership

• 1% Limited Partnership interest is calculatedto be worth $40,000

– But what price can the owner get at sale?

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Producers 74

– But what price can the owner get at sale?

– Discount for

• Lack of control

• Lack of marketability

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Special Use Value for Land

• Value real estate at “ag” use, not Fair Mkt. Value

• If more than 50% of estate is Business Property– Land, cattle, trucks, tractors, etc

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Producers 75

• And more than 25% is real estate

• May qualify for another $1,100,000+ exemptionmovable target

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Special Use Value Requirements

A. Business use

B. Material participation

C. 50% ag property

D. 25% land

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. 25% land

E. Qualified heir

F. Keep for 10 years in business use

G. Proper reporting

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Special Use Value of Land

• Get Basis of Special Use Value

– If fail to use for 10 years, pay tax

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Producers 77

– If fail to use for 10 years, pay interest if want stepup in basis

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Special Ag Use Formula

Rent –Taxes= SUV

Estate and Transition PlanningWorkshop for Agricultural

Producers

Rent –Taxes

FLB Rate= SUV

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Life Insurance

A. View as an investment

B. View as source of liquidity

Estate and Transition PlanningWorkshop for Agricultural

Producers

B. View as source of liquidity

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Life InsuranceTaxable in your estate if you can…

A. Borrow against itB. Designate beneficiaryC. Have potential of receiving benefit from it

Called “incidents of ownership,” these exist on an insurance

Estate and Transition PlanningWorkshop for Agricultural

Producers

Called “incidents of ownership,” these exist on an insurancepolicy if an individual has the right to:• change the beneficiary,• transfer ownership of the policy,• use the policy value as collateral for a loan, or• any other traditional rights of ownership.

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How to get life insurance out of your estate?

A. Use an irrevocable trust (but must live 3years after transfer)

B. For new of continuing payment insurance,use a Crummey Trust

Estate and Transition PlanningWorkshop for Agricultural

Producers

use a Crummey Trust

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An Irrevocable Life Insurance Trust

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Producers 82

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Final Considerations

• Power of Attorney –

– Who to trust with business affairs

• Selection of guardian if needed

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Producers 83

• Selection of guardian if needed

• Second marriage concerns

• Health Care Decisions

• Directive to Physicians – Living Will

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Dealing with Incapacity:When you can’t make decisions for yourself

A. Guardianship

B. Power of Attorney

Estate and Transition PlanningWorkshop for Agricultural

Producers

B. Power of Attorney

C. Trust

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Power of Attorney – Business

Person who acts for you

-in special situations

-in general situations

Estate and Transition PlanningWorkshop for Agricultural

Producers

When you can’t act for Yourself

-“Durable, General Power of Attorney”

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Power of Attorney• Grant of power to another to look after assets and manage

affairs.

• Anticipates possibility of incompetence; avoids need forincompetency hearing or approval of guardian.

• Statute defines powers (plenary – complete, unqualified):– Should also include express powers for tax returns, life insurance

Estate and Transition PlanningWorkshop for Agricultural

Producers

– Should also include express powers for tax returns, life insurancematters, making gifts, transferring property into trust,

– Accessing safe deposit box, dealing with retirement plans and SocialSecurity.

• May be contingent or present:– Contingent: effective only upon incompetence.

– Present: effective when executed and continues in spite ofincompetence.

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Other Documents to Consider

A. Health Care Power of Attorney

B. Living Will – Directive to Physicians

C. Designation of Guardian if needed

D. Marital Property Agreement

Estate and Transition PlanningWorkshop for Agricultural

Producers

D. Marital Property Agreement

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Durable Power of Attorney for Health Care

• Allows you to:• Choose a person (agent) to make health care decisions for you if you

cannot speak for yourself.• Communicate instructions about your health care.

• Your responsibilities:• Think about your values and wishes.• Choose someone you trust.• Choose an alternate agent.

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Choose an alternate agent.• Talk to family members and the agent concerning your wishes.• Complete, sign and make copies for the agent and family members.

• Agent responsibilities:• Understand your wishes.• Evaluate choices about your heath care.• Make decisions in accordance with your wishes.• Keep the original document.

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Advance Directives• Durable power of attorney:

– A grant of authority to make financial decisions and conduct

business on your behalf if you become incapacitated.

• Durable power of attorney for health care:

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Durable power of attorney for health care:

– A grant of authority to make health care decisions on your

behalf if you are unable to make such decisions.

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A Living WillBecomes effective when death is the alternative totreatment and you are unable to make that decision.

• Allows you to:• Direct physician to withhold or withdraw treatment that could

prolong the dying process.

• Your responsibilities:

Estate and Transition PlanningWorkshop for Agricultural

Producers

• Your responsibilities:• Clarify wishes with your family and with your physician.• Complete the proper forms.• Make copies for your family and physician.

• Doctor’s responsibility:• Follow your wishes.

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Estate Planning Tools Include

Testamentary Instruments

Wills

Pourover Wills

Standby Trusts

Estate and Transition PlanningWorkshop for Agricultural

Producers

Standby Trusts

Account Title/Review Change

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Estate Planning Tools Include

Lifetime Planning

Declarations of Guardian

Powers of Attorney/Escrow Letter

Management Trust

Estate and Transition PlanningWorkshop for Agricultural

Producers

Management Trust

Directive to Physician

Health Care Power of Attorney

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Estate Planning Tools Include

Planning for Children

Guardian Designation

Uniform Transfers to Minors

Minor’s Trust

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Producers

Minor’s Trust

Crummey Trust

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Estate Planning Tools Include

Life Insurance

Tax Planning

Beneficiary Designation

Ownership Review

Estate and Transition PlanningWorkshop for Agricultural

Producers

Ownership Review

Life Insurance Trust

Policy Review

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Estate Planning Tools Include

Employee BenefitsTax PlanningBeneficiary Designation

Charitable

Estate and Transition PlanningWorkshop for Agricultural

Producers

CharitableGiftsFoundationsCommunity ChestLead and Remainder Trust

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Estate Planning Tools Include

Value Shifting

Installment Sales

Self-Canceling Notes

Sale of Remainder Interests

Estate and Transition PlanningWorkshop for Agricultural

Producers

Sale of Remainder Interests

Gifts

Limited Partnerships

Corporate Plans

Grantor Retained Income Trust

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Estate Planning Tools IncludeDefensive Planning

Homestead

Partition Agreements

Trusts

Split Interests

Estate and Transition PlanningWorkshop for Agricultural

Producers

Split Interests

Gifts

Parents’ Wills

Inheritance Trust

Marital Property Agreements

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Put Together a Team of Advisors• Start with referrals and interview potential

advisors

Accountant

Banker

Insurance agent

Estate and Transition PlanningWorkshop for Agricultural

Producers

Insurance agent

Investment advisor

Lawyer

Financial Planner

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Getting Started• Determine what you own and how much it is worth.

• Consider changing property ownership(community/separate)

• Who to “provide for”

• When to pass ownership – gift early, death, trust

Estate and Transition PlanningWorkshop for Agricultural

Producers

• When to pass ownership – gift early, death, trust

• Review parents’ and grandparents’ estate plans

• Coordinate all 4 ways to pass property

• Look at lifetime tax savings for beneficiaries

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Final Considerations

• It is your will

• It is your trust

• It is your business

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Producers 100

• Think about how you want to take care of yourfamily

• As Burger King says, “Have it your way”

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Thank You

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Producers 101