1.  Jerry Rhinehart, CIC, CLU, ChFC, RHU Panama City, FL Estate Planning Techniques

2.  To understand the importance of Estate Planning and the various options available.  To be familiar with the usual misconceptions, or “Myths”, of Estate Planning.  To know the law and advantages of “gifting”. Learning Objectives 1

3.  To understand the application, benefits and use of various trusts in Estate Planning.  Living Trust  Charitable Remainder Trust  Testamentary Trust  Bypass Trust Learning Objectives 1

4. Please note the DISCLAIMER

5. The impact of the Federal Estate Tax 3 The Judge said...

6.  High Federal Estate Tax (FET) The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right! 3

7. Under current law, heirs of a single individual that dies in 2015 with a Net Estate of $6,430,000 (total Fair Market Value of assets less 1- mortgages and liens, 2- settlement cost, and 3- final expenses) will owe flat FET of 40% on the $1 million excess ($400,000) within 9 months of the date of death. And, it is payable in CASH (the IRS does not want rental property, accounts receivable, crops in the field, ownership of a family business, etc.) They want CASH… and they will get it! Every U.S. Citizen Gets a $5,430,000 Exemption in 2015 (Indexed for future years)

8. YearExemption 2002$1,000,000 2003$1,000,000 2004$1,500,000 2005$1,500,000 2006$2,000,000 2007$2,000,000 2008$2,500,000 2009$3,500,000 2010Repeal Note: Legislation was enacted in 2012 and the “exemption” is indexed to increase for inflation Effective for 2015 O Single Individuals – No FET if Net Estate is $5.43 Million or less O Married Couples – No FET if Net Estate is $10.86 Million or less O Any excess … subject to flat 40% FET

9. George Steinbrenner (“The Boss”) – World Series Win - 2000

12. Know This Regarding FET... $5,430,000 (2015) 40% Payable in 9 Months Payable in Cash!

13.  High Federal Estate Tax (FET) The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right! 3  High Probate Cost  Delays in Settlement

14. The Importance of Estate Planning 4  Some “famous people” have done a good job of estate planning and some...

15. 4 Estates of Well-Known People

16. 4 Elvis Aaron Presley — 1936-1977  Would you have “wasted your time” calling on Elvis for his estate planning?  Did Elvis (or his manager) do a “good job” of estate planning?  73% erosion of his “stuff”.  Seven years delay in settlement.

19.  High Federal Estate Tax (FET) The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right! 3  High Probate Cost  Delays in Settlement Low (or no) FET Reduced (or no) Probate Prompt Settlement

20.  Possible liquidity problems for loved ones! 3 Ample cash flow to pay taxes, debts, and provide an income for the life of your spouse! The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right!

21.  Tough decisions to be made by loved-ones — probably not trained for such a task... 3 Pre-determined decisions that treat loved-ones, benefi- ciaries, charities, employees, etc., based exactly on your wishes! The Cost of Doing Nothing vs. The Cost/Time/Aggravation of Doing it Right!

22. Basic Truths in Estate Planning  You cannot die without a will!

23. Basic Truths in Estate Planning  Just what is a will?  Is it the only “legal document” most people need?

24. Basic Truths in Estate Planning  You cannot die without a will!  Everybody has an Estate Plan!

25. 5 Estate Planning “Myths”  Myths Concerning a Will (or no will)

26.  Allows me to avoids probate  Will save me estate taxes  My loved ones will be treated equally  I told my kids how to distribute my possessions …  My business is very successful … 5

27. 5 Estate Planning “Myths”  Myths Concerning a Will (or no will)  “I’m not rich” (life insurance) 

28. “Stuff” For Estate Calculation DescriptionFair Market ValueDebt House1,000,000(400,000) Mutual Funds1,430,000- 0 - Real Estate2,000,000(600,000) Qualified Plans2,500,000- 0 - TOTAL6,430,000(1,000,000) 6,340,000 - 1,000,000 5,430,000

29. “Stuff” For Estate Calculation Net Estate: $5,430,000 Personal Life Insurance (owned)700,000 Group Life Insurance at Work200,000 Travel Accident100,000 TOTAL LIFE INSURANCE1,000,000

30. “Stuff” For Estate Calculation Non-Life Insurance “Stuff”5,430,000 Life Insurance “Stuff”1,000,000 TOTAL6,430,000 Less Year 2014 “Freebie”- 5,430,000 Total Subject to FET1,000,000 FET Owed (40%)400,000

31. 5 Estate Planning “Myths”  Myths Concerning a Will (or no will)  “I’m not rich” (life insurance)  “I can do this planning sometime in the future”  

32. 5 Estate Planning “Myths”  Myths Concerning a Will (or no will)  “I’m not rich” (life insurance)  “I can do this planning sometime in the future”  “I don’t have to do anything to get the tax breaks that are available”   

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34. “The sale would give the Robbies cash to pay off an estate tax bill of about $47 million.” U.S. Today - March 24, 1993

35.  $5,430,000 Exemption (‘15) *  40% FET rate (‘15) (per person)  Possible 5% probate expense  FET due in 9 months (exceptions do exist)  CASH – The IRS wants it!  7 years – possible delays 7

36. “Rules of the Games” Concerning FET  “Garage Sale Problem”  “Dreaded Discount Buyer 7  Poor Estate Planning (or no planning) can lead to the potential forced-sale of property to create liquidity

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38. $100,000 $300,000 A View of Your “Stuff” - 2014 $5,000,000 $1,000,000 $250,000 $6,650,000 IRS Hose

39. Who Are Your Heirs? Mary - daughter John - son Will - son Will, Jr. - G-son Church University Hospital LOVE Sara (CPA) Barry (atty) OTHER HATE IRS Dreaded Discount Buyer

40. The News... You’re alive You have an Estate Plan Correctable Good News Q-Plans (401k) $1,000,000 2 - Good Deals 2 - Bad Deals Bad News Ugly News 9 Months 35% - 50% Cash Dreaded Discount Buyer 40% (-400K) 600K

42. 9 Why Give Away Your “Stuff”?  Reduce current estate size / tax  Enjoyment of the donor  Fund life insurance trust  Gifts to a charity / individuals  Future appreciation to another

43. You Sell the stock You Give the stock away during your lifetime The stock is Transferred at your death Intel, Inc. Basis - $1,000 FMV - $10,000

44. Intel, Inc. Basis - $1,000 FMV - $10,000 You Sell the stock - 10,000 - 1,000 = 9,000 x 15% Capital Gains Tax -- $1,350 Tax

45. Intel, Inc. Basis - $1,000 FMV - $10,000 You Give away the stock (during your life time) 10,000 - 1,000 = 9,000 x 15% Capital Gains Tax -- $1,350 Tax to Seller

46. The stock is Transferred to another person at your death 10,000 - 10,000 (step-up-in basis) = - 0 - No Tax to the Seller Basis - $1,000 FMV - $10,000 Intel, Inc.

47. What if You Can Not Prove Your Cost Basis?  The IRS rules state that without proof of basis — then your basis is ZERO! (Thus ALL gain!)

48. 11 An unlimited amount can be given to a college or medicalfacility for the benefit of anyone!  Three year rule  Excess gifts — $14,000 maximum / “completed gift” (present interest) An unlimited amount can be gifted between husband / wife

49. Parties of a Trust  Trustee  Grantor  Beneficiaries Bank

50. 13 Irrevocable Life Insurance Trust (ILIT)  Why is this Trust beneficial for a husband and wife that have an Estate Tax problem?  How does an ILIT work?

51. Irrevocable Life Insurance Trust in Action GrantorTrust Trust Beneficiaries  Crummey Withdrawal Notice  Annual Gifts  Premium Paid Insurance Company  Death Benefit Grantor’s Estate  Provides Estate Liquidity  Assets Distributed 14

52. The History of the Federal Estate Tax 14

54. Why would someone give away their “stuff” to a charity? 15  FMV in Estate  Pay tax on the sale of the asset  May not produce adequate income  Expense to maintain asset  Managing the asset

55. What about “basis”? 15

56. You Sell the land You Give the land away during your lifetime The land is Transferred at your death LAND Basis - $500,000 FMV - $5,000,000

57.  Mom (56) and Dad (58)  Florida property - FMV @ $5,000,000  Basis @ $500,000  Sale - 20% (1995) Capital Gains Tax on $4.5 million or $900,000  

58.  What are some other problems Mom and Dad Mom might be concerned about? 

59. Gift Charitable Remainder Trust  Mom and Dad  Low Basis “Stuff”  Low Income “Stuff”  “Stuff” FET  Trustee(s)  Receives Income  Tax Deduction  Sell Asset(s)  Pays Income  Pays No Tax Wealth Replacement Trust - Life Insurance - Mom & Dad CRT 20

60. How Does a CRT Work? 17  Competent attorney  Form your own qualified charity or foundation  Name Trustee(s)  Gift assets (unlimited amount)  Take tax deduction

61.  Complicated formula  37% 17  30% - 50% AGI in a year  Carried forward - 5 years

62. Two Types of CRT Pay-out 18  Unitrust (CRUT) - $70,000 / $98,000  Annuity Trust (CRAT) - $70,000 / $70,000

63. How Does a CRT Work? 17  CRT sells asset  CRT pays no tax!  CRT pays life income to grantors @5% - 8% (monthly / annually)  Income taxable to recipient  Wealth Replacement Trust (ILIT)

64. How Does a CRT Work? 17  Trust applies for life insurance (replace lost inheritance)  Mom / Dad make $$ gift to ILIT for the benefit of kids - $14,000 maximum per year  CRT terminates income to Mom / Dad at last death  Heirs receive ILIT proceeds

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66.  Tax free cash from the ILIT  None of the land (illiquid asset, gotta find a buyer, possible estate tax, settlement cost, headaches, etc.)

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68. 23 Testamentary Trust  An absolute must for parents (single or a couple) who have minor children Questions:  Would a life insurance company pay life proceeds to a minor(s)?  Would a court allow money to be paid to a minor(s)

69. 23 Testamentary Trust  An absolute must for parents (single or a couple) who have minor children How can parents be assured of have their life insurance proceeds (and other assets) pass properly to their minor children?  Testamentary Trust attached to a Will with a designated Guardian(s)

71.  NEVER name minor children (or any ‘special needs person’ of any age) as a beneficiary on financial instruments (life, annuities, bank accounts, brokerage accounts, etc.) ALWAYS use proper beneficiary designations and keep them up-to- date. AND… keep multiple copies! 24

72. Asset Type and Total Value Owned by Spouse #1 Owned by Spouse #2 Business Residence Total $6,500,000 500,000 $7,000,000 No Ownership Jointly -0- $250,000 Solely Jointly $6,500,000 250,000 $6,750,000 Bypass Trust (A-B Trust) How Assets are Owned (and by whom) are Very Important Regarding FET 25 Remember one of the Myths of Estate Planning? … “I don’t have to do anything to get tax breaks I deserve!”

73. Will / No Credit Shelter (A-B) Trust $7,000,000 Value of “Stuff” Dad - Died in 2013  Mom - Dies in 2015  Dad Died - All $7,000,000 transfers to Mom  Mom pays no FET Option 1 How much? - DIES  Mom’s heirs pay FET nine months later. 26

74. Option 1 Mom’s Stuff $7,000,000 Exclusion (‘15) -5,430,000 Subject to FET 1,570,000 FET % X 40% Tax $628,000 26

75. Will with Credit Shelter (A-B) Trust $7,000,000 Value of “Stuff” Dad - Died in 2013  Mom - Dies in 2015 Option 2

76. Estate Value $7,000,000 Trust - A Surviving Spouse $2,000,000 -5,430,000 -0- x 40% -0- Trust - B Deceased Spouse $5,000,000 -5,000,000 -0- $628,000 -0- 26

77. Family Limited Partnership  Retain flexibility and control  Receive income  Protect against claims of creditors  Ultimately transfer business to kids  Put business outside the reach of a “nasty divorce” situation  Save (or escape) future estate tax 27

78. 28 Properly Designed FLP...

79. Family Limited Partnership  General vs. Limited partnership interest  Gifting Limited interest (using gift tax exclusion and ‘discounted’)  Minors  Income to the General partner  General partner has liability (and control) over debts 29

80. Family Limited Partnership  Advantages  Disadvantages 30

81. 31 * Rights and Restrictions * Gifts and Discounted Values -Making a $14,000 gift turn into a $20,000 gift The Issues of…

82. 33 * Life Insurance and the FLP The Issues of…

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84. Estate Planning: – Options and Opportunities – Thank You for Your Attendance