Estate Planning
Parman R. Green
University of Missouri Extension
Ag Business Mgmt. Specialist
greenp@missouri.edu
660 542-1792
Program Goals
Identify & Prioritize EP Goals & Objectives
Identify Tools & Provisions for Meeting Goals
Compile a Balance Sheet
Complete an SOS
“Special Organized Stuff”
Estimate Your Potential Estate Tax and
Settlement Costs
2
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
Federal Estate and Gift
Exclusion Amounts
Year
2003
2004
2005
Maximum
Rate
49%
48%
47%
Estate
Exclusion
$1.0 million
$1.5 million
$1.5 million
Gift
Exclusion
$1.0 million
$1.0 million
$1.0 million
2006
2007
2008
46%
45%
45%
$2.0 million
$2.0 million
$2.0 million
$1.0 million
$1.0 million
$1.0 million
2009
2010
2011
45%
35% gifts
55% + 5%
$3.5 million
Repealed
$1.0 million
$1.0 million
$1.0 million
$1.0 million
4
ESTATE & GIFT TAX
UNIFIED RATE SCHEDULE
(selected brackets)
not over 10,000
10,000 to 20,000
….
….
….
500,000 to 750,000
750,000 to 1,000,000
1,000,000 to 1,250,000
1,250,000 to 1,500,000
1,500,000 +
18% of such
1,800 + 20% >
10,000
155,800 + 37% > 500,000
248,300 + 39% > 750,000
345,800 + 41% > 1,000,000
448,300 + 43% > 1,250,000
555,800 + 45% > 1,500,000
5
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
Wills
Trusts
Annuities
Medicare, Medicaid, Longterm Care Ins.
Living Wills
Durable Power Attorney
6
Tools & Provisions
Marital Deduction
Annual Gift Exclusion
Gift Splitting
Educational & Medical Gifts
Charitable Gifts
7
BEQUEST vs GIFT
160 A. purchased 1950 in for $16,000.
Current FMV is $320,000.
Bequest
Decedent’s (donor’s) basis
Heir’s (donee’s) basis
Built-in taxable gain
Gift
16,000
16,000
320,000
16,000
-0-
304,000
8
Tools & Provisions
Title Ownership
– Sole Ownership
– Tenants in Common
– Joint Tenancy (JTWROS)
Tenancy by Entirety (restricted to husband & wife)
9
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
Tools & Provisions
Generation Skipping
– Children for life, grandchildren with remainder interest
Business Organization
–
–
–
–
Sole proprietorship
Partnership
Limited Liability Company
Corporation “C” or “S”
11
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
Tools & Provisions
Life Insurance
Wills
Trusts
Annuities
13
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
Trust - Terms
Grantor
Trustee
Beneficiary
Living
Testamentary
Revocable
Irrevocable
Annuity Trust
Unitrust
15
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
Priority of Estate
Asset Transfer Methods
Right of Survivorship (title)
Trust
Non-probate Transfer
Will
Intestate
17
Tools & Provisions
Medicare, Medicaid, Long-term Care
Insurance
Living Wills
Durable Power Attorney
18
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.
What’s Their Estate?
Jack
Cash
Inventory
Machinery
Real Estate
Retirement Accts.
Life Insurance
Assets
Short Term Liab.
Long Term Liab.
Liabilities
Net Estate
Jill
75,000
100,000
175,000
1,500,000
200,000
500,000
2,550,000
0
50,000
50,000
75,000
100,000
175,000
1,500,000
100,000
2,500,000
1,900,000
1,950,000
0
50,000
50,000
What’s Their Estate?
Jack
Cash
Inventory
Machinery
Real Estate
Retirement Accts.
Life Insurance
Assets
Short Term Liab.
Long Term Liab.
Liabilities
Net Estate
Jill
75,000
200,000
350,000
1,500,000
200,000
500,000
2,825,000
0
50,000
50,000
75,000
0
0
1,500,000
100,000
2,775,000
1,625,000
1,675,000
0
50,000
50,000
Strategies for Jack & Jill
Transfer life insurance to an
irrevocable life insurance trust.
Income to wife for life –
remainder interest to children.
22
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
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
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