Presented - WealthCounsel

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
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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.
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
of Land
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
• Potential Remedies
– Define Code as it existed on December 31,
– 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. §
• 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
 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
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
 Lifetime or testamentary
Team Approach for Planning
• Attorneys for parents and children
• Insurance Professional
• Investment Advisor
• Banker (lines of credit)
• Experts
• Extension Service
• University and College Family
Business Programs (106)
o Land Grant Schools
o – Austin Family Business
Program at Oregon State University
• Checklists
• Ties to the Land
• USDA (
Stan Miller: [email protected]
David Naples: [email protected]
Jeanne Smith: [email protected]
Orion Samuelson: [email protected]
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