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WEALTH MANAGEMENT AND ESTATE PLANNING Robert Moore Wright & Moore Law Co. LPA Delaware, Ohio.

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Presentation on theme: "WEALTH MANAGEMENT AND ESTATE PLANNING Robert Moore Wright & Moore Law Co. LPA Delaware, Ohio."— Presentation transcript:

1 WEALTH MANAGEMENT AND ESTATE PLANNING Robert Moore Wright & Moore Law Co. LPA Delaware, Ohio

2 Estate Taxes Ohio abolished estate taxes in 2013 Federal estate taxes Current exemption (unified credit) is 5.43M per person Indexed every year for inflation Portable – surviving spouse can use deceased spouse’s unified credit Should file federal estate tax return even if not paying estate taxes to establish tax basis on assets Made permanent by Congress (until changed by Congress)

3 Will or Trust Based Estate Plan Will PlanIssueTrust Plan Not ImportantPrivacyImportant SimpleComplexity of Estate PlanComplex Little or NoneConcerns about HeirsSome or Significant Little or NoneSurviving Spouse Remarriage Concerns Some or Significant Keep to minimumLegal FeesPay what it takes Do Not Mind ProbateProbateAvoid Probate Little or No ConcernEstate TaxesMaximize Savings

4 Will Based Plan Husband Wife Children/ Heirs

5 Trust Based Plan Husband Wife Children/ Heirs Husband’s Trust Wife’s Trust Jointly Titled Assets Income and Principal to Surviving Spouse

6 Advantages of Trust Plans Privacy Faster transition for farming operation Remarriage of Surviving Spouse Lock in value of assets at first death Avoid Probate/ Administration of Estate Allows for Complexity of Plan Problem Heirs More tools available to accomplish goals of estate plan

7 Remarriage Issues Husband Wife Children/ Heirs 2 nd Husband 2 nd Husband’s Children/ Heirs

8 Probate and Non-Probate 8 Assets Beneficiaries Will Probate Will Probate TRUST Probate Non-Probate TOD, POD, or Survivorship

9 Complexity of Plan If you make specific provisions for mineral rights or other assets, trust may be better Sever mineral rights from surface rights Give one or more heirs right to buy mineral rights Keep in trust for heirs 2 nd marriages Right of First Refusals Place mineral rights into LLC The more complex the plan, the more reason to keep out of probate

10 Problem Heirs HusbandWife DOD Husband’s Trust Husband’s Trust Wife’s Trust Wife’s Trust DOD Child 1 Child 2 Trust for Child 2 Trust for Child 3 Grandchildren

11 Irrevocable Trusts Once an irrevocable trust is established, it cannot be changed Strategy is to give up ownership and control of assets to keep out of federal estate taxes, long term care costs and/or liability exposure Most farmers do not want to give up control of their assets while they are still living Still subject to 5 year Medicaid look-back period Cannot change beneficiaries after trust is established Can be very effective in limited situations Attorneys differ on applicability of irrevocable trusts

12 Life Insurance A good way to: Add liquidity to an estate Provide inheritance to off-farm heirs Pay debt for heirs/spouse Life insurance is another tool in the toolbox Make sure you understand what type of policy you are getting

13 Severing Mineral Rights Mineral Rights can be severed from Surface Rights A deed can transfer (or retain) mineral rights separate and apart from surface rights Can also several mineral rights in the estate plan Often used if land is going to a farming heir but want all heirs to share in mineral rights Ohio law gives County Auditors the option to tax severed mineral rights separate from surface rights Mineral Rights have priority over surface rights. The surface rights owner cannot prevent the mineral rights owner from drilling a well.

14 LLC’s in Estate Planning Excellent way to hold jointly owned land or mineral rights Reduce estate taxes by discounting value of LLC Provide additional liability protection

15 Risks with Owning Real Estate Jointly Ohio provides every owner of real estate with partition rights An owner of real estate can force the other owner(s) to buy his/her share of the real estate or have the land sold at Sherriff’s sale The right of partition transfers to every owner regardless of how he/she received ownership Land can be transferred outside of the family due to death, divorce, creditors, bankruptcy or wanting to “cash out” Applies to Mineral Rights

16 Example of Jointly Owned Land Mother and Father own a 100 acre parcel and want to gift ½ of ownership to their son and daughter, jointly What is the best strategy?

17 Transfer 50% of Ownership Son’s 25% Daughter’s 25% Mother and Father’s 50% 100 Acres

18 Transfer 25 acres to each Mother and Father’s 50% 100 Acres Son’s 25 acres Daughter’s 25 acres

19 Transfer Land to LLC then Give Ownership to Son and Daughter 100 Acres Parents are Managing Members and retain control Children are 50% owners but do not have management rights Before any ownership can be transferred outside of family, other family members get to buy the ownership back at a reduced price over a set number of years. LLC

20 Discounting The IRS currently allows business entities to be discounted The discount is due to minority ownership (less than 50%), shared management, transfer restrictions Discounting essentially reduces the value of assets for tax purposes in exchange for giving up full control Typical discounts range from 20-40% and sometimes more.

21 Discounting Example Mom and Dad own land worth $5,000,000 Mom and Dad set up an LLC and transfer the land into the LLC They gift each child 1% ownership The restrict the transfer of ownership to only family members Mom and Dad are the managing members Mom and Dad have reduced their value in the asset by as much as $2,000,000 (40% discount) Minority ownership – Mom and Dad each own 49% Shared Management – Mom and Dad share management Transfer Restrictions – Mom and Dad cannot sell their ownership on the open market

22 Liability Protection LLC Holding Land and/or Mineral Rights Member 1 Member 2 Other Assets Liability Barriers

23 Contact Information Robert Moore Wright & Moore Law Co. LPA 92 N. Sandusky St. Suite #300 Delaware, Ohio


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