WEALTHCOUNSEL
THOUGHT
LEADER
SERIES
Wed., April 28, 2010 • 1:00 – 2:00 p.m. ET
Presented by:
Stan Miller, J.D.
David M. Naples, J.D., LL. M.
Jeanne Smith, J.D.
Orion Samuelson, Guest Speaker
HOUSEKEEPING
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HOUSEKEEPING
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David M. Naples, J.D., LL.M.
•
Shareholder, Leonard, Street & Deinard
Mankato, MN
•
Member, American Bar Association,
Taxation Section, and Real Property,
Trust and Estate Law Section
• Current Chair, Estate Planning and
Administration for Business Owners,
Farmers and Ranchers Group
Jeanne Smith, J.D.
•
Principal, Jeanne Smith & Assoc.,PC
Corvallis, OR
•
•
•
Member, WealthCounsel
Member, The Advisors Forum
Member, Oregon State Bar
Stan Miller, J.D.
Moderator
•
Founder & Principal, WealthCounsel
•
Founder & Principal, Advisors Forum
•
Principal, Miller & Schrader, PA
Little Rock, AR
Special Guest Speaker
Orion Samuelson
Agricultural Journalist, Chicago, IL
•
Broadcast Journalist, WGN Radio 720, Chicago
•
Host, National Farm Report Radio Program
•
Host, Samuelson Sez Radio Program
•
TV Co-Anchor, “This Week in Agribusiness”
•
Inductee, National Radio Hall of Fame
Farm Families Come From 4 Quadrants
Passive
Ownership
of Land
Active
Farm
Operation
Higher Net Worth >$3.5 mil.
Stan Miller
J. D.
Lower Net Worth <$3.5 mil.
Impact of Estate Tax Repeal on Farmers,
Ranchers, and Vintners
• Formula Gifts – issues on death of
first spouse of 2010.
David Naples
J.D., LL.M.
• Types
• Concerns
• Property does not pass as intended
• Liquidity issues
• Basis issues
• Pecuniary Marital Deduction Formulas
– Inadvertent disinheritance of surviving spouse
– Estate tax from overfunded credit shelter trust
– Fail to fully use basis step-up for Qualified
Spousal Property
• Pecuniary Credit Shelter Formulas
– Overfund surviving spouse’s estate
– May disinherit descendants
– QTIP trust taxable if no “state-only” QTIP
election
• Potential Remedies
– Define Code as it existed on December 31,
2009
– If no “state-only” QTIP election, consider
outright marital gift with disclaimer
– If have “state-only” QTIP election, consider all
to QTIP trust
Annual Exclusion Gifts of Interests in
Closely-Held Businesses
• IRC 2503(b)
• Must be “present interest” gift
• “An unrestricted right to immediate use,
possession or enjoyment of property or
income from property …” Treas. Reg. §
25.2503-3(b)
• Cases – Addressing Gifts of
Business Interests
– Hackl v. Commissioner, 118 T.C. 279 (2002), aff’d,
335 F.3d 664 (7th Cir. 2003)
– Price v. Commissioner, T.C. Memo. 2010-2
(January 4, 2010)
– Fisher v. U.S., 105 AFTR 2d 2010-1347 (DC IN)
(March 11, 2010)
• General Rule – Hackl Test
– Donee right to immediate use, possession or
enjoyment of property or income therefrom
– That provides substantial economic benefit
• Facts and circumstances
• Governing documents critical
• Right to Use Transferred Property
– Outright ownership, alone, not present interest
– Must essentially be able to convert to liquid asset
• Right to Receive Income
– Hackl test
• Company generates income near time of gift
• Portion flows steadily to donee
• Income flow readily ascertainable
• Take Aways
– Review governing documents
– Tie restrictions to strategy
– Consider filing gift tax returns to report annual
exclusion gifts
Challenges Unique to Farmers
• Love of the Land
“Never sell the farm!!”
• Equal is not Fair
Jeanne Smith
J.D.
 Equity vs. Control
• Communication among family members
 Don’t assume all the kids want the
farm or any part of it
Challenges Unique to Vintners
• ATF regulations on transfer of interests
• Value of vines increases over time
• May be more goodwill in valuation
• Initially capital intense
• Ancillary revenue sources and businesses
Equalizing Gifts Among Heirs
Separate the land and operations.
1. Create two classes of ownership
• The class received by the active children would have
managerial duties and would receive both a salary and a
distribution from profits.
• The other class would not have managerial duties and
would not receive a salary, but would still receive a
distribution from profits
2. Create two LLC’s
• The Farm Operations LLC will be distributed to the active
farming children
• The other LLC would own the farmland and lease it on a
long term lease to the Farm Operations LLC
Techniques for Minimizing
Disputes
In all cases prepare a Buy-Sell Agreement requiring
the active children to buy out the passive children
and vice-versa.
• Puts and Calls
• Long term buyouts to not jeopardize liquidity
• Valuation with or without minority discounts
Techniques for Funding
Estates Taxes
•
Irrevocable Life Insurance Trust
 May be useful for meeting the estate tax burden
of an estate composed of illiquid assets
 May provide liquidity for buyouts
Techniques for Minimizing
Estate Taxes
•
Conservation Easements
 Allows land to be preserved, and provides an
income tax deduction and estate tax
reduction
 Lifetime or testamentary
Team Approach for Planning
• Attorneys for parents and children
• CPA
• Insurance Professional
• Investment Advisor
• Banker (lines of credit)
• Experts
RESOURCES
• Extension Service
• University and College Family
Business Programs (106)
o Land Grant Schools
o www.familybusinessonline.org – Austin Family Business
Program at Oregon State University
• Checklists
• Ties to the Land
• USDA (www.usda.gov)
CONTACT INFO
Stan Miller: [email protected]
David Naples: [email protected]
Jeanne Smith: [email protected]
Orion Samuelson: [email protected]
THANK YOU!
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