1. Jump to first page 1 Unit 8, part 2 Estate Planning for Agriculture & Forestry: Basic Documents, Tax Issues, and Conservation Easements An Educational Program of the North Carolina Cooperative Extension Service Adapted for ARE 306

2. Jump to first page 2 Basic Documents n Will n Durable power of attorney n Health care power of attorney n Living will n Trusts

3. Jump to first page 3 North Carolina Inheritance Taxes n Repealed effective January 1, 1999 n Tax waivers eliminated n N.C. gift tax not repealed u $100,000 exclusion amount n N.C. Estate Tax u Replaces inheritance tax n N.C. probate tax – up to $6,000

4. Jump to first page 4 N.C. Estate Tax n Deaths after December 31, 2004 n Equal to allowable federal state death tax credit allowable under IRC §2011, as the IRC existed prior to 2002 n May take deduction under IRC §2058 n Inequity: no estate tax due under pre-2002 IRC, then no NC estate tax due

5. Jump to first page 5 What is a Durable Power of Attorney? n A document under the terms of which you give someone the legal authority to act for you if you should become physically or mentally unable to handle your own affairs n The person who acts for you is called your “agent” or “attorney-in- fact” n May continue giving program if language explicit

6. Jump to first page 6 What is a Health Care Power of Attorney? n A document under the terms of which you give someone the legal right to make your health care decisions when you cannot make them yourself n The person who acts for you is called your “health care agent”

7. Jump to first page 7 What is a Living Will? n A statement that you want to die a natural death n You do not want life prolonged by artificial means if there is no reasonable hope of recovery

8. Jump to first page 8 What is a Trust? n A legal arrangement by which a grantor transfers legal title of property to a trustee who holds and manages the property for the benefit of the beneficiaries.

9. Jump to first page 9 Types of Trusts n Living trust n Testamentary trust n Revocable trust n Irrevocable trust

10. Jump to first page 10 Uses for a Living Trust n Provide financial management for the grantor’s benefit n Will substitute that provides privacy for intergeneration farm transfers n Revocable trust u No tax consequences u Can be undone

11. Jump to first page 11 Uses for a Testamentary Trust n Make full use of unified credit n Provide financial support for surviving spouse while preserving farm assets for children n Irrevocable trust (after testator’s death) u Separate taxable entity u Difficult to modify for unforeseen circumstances

12. Jump to first page 12 Advantages of Trusts n Flexibility n Control n Solutions to difficult family and financial problems n Potential tax benefits (full use of unified credit)

13. Jump to first page 13 Disadvantages of Trusts n Expense u Cost of establishing u Cost of operating n Complexity u Record keeping n Loss of control of assets (irrevocable trusts) n Income tax consequences (irrevocable trusts)

14. Jump to first page 14 Tax Consequences of Irrevocable Trusts n Maximum individual rate applied to income at low (<$10,000) threshold n May avoid tax if all income distributed