1. Estate Planning Parman R. Green University of Missouri Extension Ag Business Mgmt. Specialist greenp@missouri.edu 660 542-1792

2. Program Goals Identify & Prioritize EP Goals & Objectives Identify Tools & Provisions for Meeting Goals Compile a Balance Sheet Complete an SOS “Special Organized Stuff” “Special Organized Stuff” Estimate Your Potential Estate Tax and Settlement Costs 2

3. Estate Planning Goals and Objectives Income & Security for Life Treat Heirs Equitably Provide for Special Needs Minimize Taxes & Settlement Costs Transfer & Preservation of Family Business Meet Requirement for “Special” Provisions Special Bequests Deal with Living Will, Durable Power of Attorney, and Long-term Care Issues 3

4. Federal Estate and Gift Exclusion Amounts YearMaximumRateEstateExclusionGiftExclusion 200349% $1.0 million 200448% $1.5 million $1.0 million 200547% $1.5 million $1.0 million 200646% $2.0 million $1.0 million 200745% $2.0 million $1.0 million 200845% $2.0 million $1.0 million 200945% $3.5 million $1.0 million 2010 35% gifts Repealed $1.0 million 2011 55% + 5% $1.0 million 4

5. 5 ESTATE & GIFT TAX UNIFIED RATE SCHEDULE (selected brackets) (selected brackets) not over 10,000 18% of such 10,000 to 20,0001,800 + 20% > 10,000 not over 10,000 18% of such 10,000 to 20,0001,800 + 20% > 10,000 …. …. 500,000 to 750,000 155,800 + 37% > 500,000 500,000 to 750,000 155,800 + 37% > 500,000 750,000 to 1,000,000 248,300 + 39% > 750,000 750,000 to 1,000,000 248,300 + 39% > 750,000 1,000,000 to 1,250,000 345,800 + 41% > 1,000,000 1,000,000 to 1,250,000 345,800 + 41% > 1,000,000 1,250,000 to 1,500,000 448,300 + 43% > 1,250,000 1,250,000 to 1,500,000 448,300 + 43% > 1,250,000 1,500,000 + 555,800 + 45% > 1,500,000 1,500,000 + 555,800 + 45% > 1,500,000

6. Tools & Provisions Marital Deduction Annual Gift Exclusion Gift Splitting Ed. & Medical Gifts Charitable Gifts Title Ownership Non-probate Transfers Generation Skipping Business Organization Special Use Valuation 14 yr. Tax Installment Life Insurance WillsTrustsAnnuities Medicare, Medicaid, Long- term Care Ins. Living Wills Durable Power Attorney 6

7. Tools & Provisions Marital Deduction Annual Gift Exclusion Gift Splitting Educational & Medical Gifts Charitable Gifts 7

8. BEQUEST vs GIFT 160 A. purchased 1950 in for $16,000. Current FMV is $320,000. Bequest Gift Decedent’s (donor’s) basis 16,000 16,000 Heir’s (donee’s) basis 320,000 16,000 Built-in taxable gain -0- 304,000 8

9. Tools & Provisions Title Ownership –Sole Ownership –Tenants in Common –Joint Tenancy (JTWROS) Tenancy by Entirety (restricted to husband & wife) 9

10. Avoiding Probate Joint Tenancy & Tenancy by the Entirety Non-probate Transfers –Pay on Death (POD) [ex: checking accounts, CDs] –Transfer on Death (TOD) [ex: stocks, bonds, vehicles] –Beneficiary Deed [example: real estate] Revocable Trust 10

11. Tools & Provisions Generation Skipping –Children for life, grandchildren with remainder interest Business Organization –Sole proprietorship –Partnership –Limited Liability Company –Corporation “C” or “S” 11

12. Tools & Provisions Special Use Valuation –Net Cash Rent Capitalization at 6.38% –Maximum Reduction for 2008 is $960,000 14 yr. Tax Installment –No principal payments first 4 years –Interest at 2% 12

13. Tools & Provisions Life Insurance WillsTrustsAnnuities 13

14. Life Insurance Incidents of Ownership right to: –Change beneficiaries –Borrow against policy –Cancel the policy Consider a “Irrevocable Life Insurance Trust” if you have a taxable estate. 14

15. Trust - Terms GrantorTrusteeBeneficiaryLivingTestamentary RevocableIrrevocable Annuity Trust Unitrust 15

16. Types of Trusts Living Trust (Revocable Trust) Testamentary Trust Irrevocable Trust Life Insurance Trust Marital Deduction & Bypass Trusts Qualified Terminal Interest Trust “QTIP” Grantor Retained Annuity Trust Qualified Personal Residence Trust Charitable Remainder Trust Charitable Lead Trust …. many more! 16

17. Priority of Estate Asset Transfer Methods Right of Survivorship (title) Trust Non-probate Transfer WillIntestate 17

18. Tools & Provisions Medicare, Medicaid, Long-term Care Insurance Living Wills Durable Power Attorney 18

19. What’s Their Estate? Jack and Jill are 67 years young and have 2 adult children and 6 grandchildren. They own as JTWROS 1,280 acres worth $3,000,000. Jack and Jill have $200,000 and $100,000 in IRAs, respectively. They have $150,000 in their checking account, held as JTWROS. The farm machinery is valued at $350,000 and the grain in storage is worth $200,000. Jack owns a life insurance policy on his life and Jill is the named beneficiary – its face value is $500,000 (for this exercise list this asset at it’s face value). They owe the bank $100,000 on a land mortgage.

20. What’s Their Estate? Jack Jill Jack Jill Cash 75,000 75,000 Inventory 100,000100,000 Machinery 175,000175,000 Real Estate 1,500,000 1,500,000 Retirement Accts. 200,000 100,000 Life Insurance 500,000 Assets 2,550,000 1,950,000 Short Term Liab. 0 0 Long Term Liab. 50,000 50,000 Liabilities 50,000 50,000 Net Estate 2,500,000 1,900,000

21. What’s Their Estate? Jack Jill Jack Jill Cash 75,000 75,000 Inventory 200,000 0 Machinery 350,000 0 Real Estate 1,500,000 1,500,000 Retirement Accts. 200,000 100,000 Life Insurance 500,000 Assets 2,825,000 1,675,000 Short Term Liab. 0 0 Long Term Liab. 50,000 50,000 Liabilities 50,000 50,000 Net Estate 2,775,000 1,625,000

22. Strategies for Jack & Jill Transfer life insurance to an irrevocable life insurance trust. Income to wife for life – remainder interest to children. 22

23. Strategies for Jack & Jill Establish by-pass trusts so surviving spouse has right to income, but keeps those assets from being included in the survivors estate when they die. 23

24. Strategies for Jack & Jill Provide for continuation of business? Provide for charitable bequests? Provide for distribution of certain assets to certain heirs? Provide for distribution in trust for the grandchildren? 24

25. Strategies for Jack & Jill What happens to the farm business if Jack is in an accident and is in a prolonged comma? To compound the problem, what happens if Jill was killed in this accident – who will manage the financial affairs and make health care decisions for Jack? 25