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 Submit Questions via Console Chat Feature At the end of the webcast: 1. Download CE Form 2. Download Speaker Bios NOTE: Slides and course materials may be downloaded from www.wealthcounsel.com/Webcast3.aspx HOUSEKEEPING At the conclusion of today’s webcast, please take a moment to complete our short Feedback Poll & Survey. 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! 1. Please rate today’s webcast and participate in a short survey. 2. Don’t forget to download materials immediately following this webcast, as live console access will end shortly. 3. The archived version of this webcast will be available on the WealthCounsel website within 24 hours.