Managing Property
Title Risks for
Montana Farm/
Ranch Operators
Western Center
for Risk
Management
Education
1
Marsha A. Goetting
Professor & Extension
Family Economics
Specialist
 Department of
Agricultural Economics
& Economics

2
James B. Johnson
Professor & Extension
Farm Management
Specialist
 Department of
Agricultural Economics
& Economics

3
Duane Griffith
Assistant
Professor &
Extension Farm
Management Specialist
 Department of
Agricultural Economics
& Economics
4
Partnerships
–Western Center for Risk Management education
–Montana Grain Growers Association
– Mountain States Beet Growers
–State Bar of Montana
– Msu Extension Faculty
5
Educational Methods
Interactive
Video
Conference
Seminars
6
Interactive Video Conf.
MSU
Burns
Telecommunications
Center
February 9, 2005
2 to 4 PM
115 preregistered
274 attended
7
Table 2:
12 Sites:
 Bozeman
 Baker
 Lewistown
 Wolfe
 Glendive
 Sidney
 Glasgow
 Culbertson
Point
 Great Falls
 Havre
 Geraldine
 Stanford
8
Fall & Winter
Series—Table 3
11
locations
October 2004
January 2005
Total = 289 participants
9
Conferences-Table 3
Montana
Grain
Growers—Great Falls
Western States Beet
Growers—Billings
Young Ag Couples—
Helena
Total = 115 participants
10
Multiple Day
Workshops—Table 3
Cabin
Fever: Havre
Spring Thaw: Billings
Granite County Herdsman
School: Phillipsburg
Total = 75 participants
11
Estate Planning:
the Basics—Table 4
MSU Extension--$10
Mailing List Updates
12
27 MontGuides
www.montana.edu/extension
econ/publications/estate.html
13
Program Outline —

Content
Farm/ranch
family
members
Wage/salary earners
Small business owners
14
Evaluation—Table 6
What actions did
participants take as
a result of the
program?

15
Participant
Involvement Technique
for Teaching Content
16
Estate
Planning
Team
Contest
Valuable
prizes !!!

17
Team Name
Decide
on:
Team
Name
Feisty
Critters
18
Take turns--Team Runner

Sticky Notes
Write
team name &
answer on sticky note
each time you
Feisty
Critters
respond to
question
50%
19
Question
What % of
Montanans paid an
Inheritance tax in
2003?

20
Montana
Inheritance Tax
0%
21
Question
What % of
Montana deceased
persons’ estates paid
a federal estate tax
in 2003?

22
Federal Estate Tax
 2003--8,426
deaths
189 paid
 2%
23
Planning Technique
Die in
appropriate
year!!!
24
Estate Tax Exclusions
& Credits
Year
Applicable
Exclusion
Applicable
Credit
2004-05 1,500,000 555,800
2006-08 2,000,000 780,000
2009
3,500,000 1,455,800
25
“Who” Gets
Your Property
When You
Die????
26
Property passes by:

Contract Law
Written Will
 Montana Law of
Intestate Succession
 Trust Agreement

27
Contracts
Examples
Life
insurance
Annuities
IRAs
KEOGH
28
Life Insurance

Bill

Vere
29
Beneficiary
Bill has
$100,000 life
insurance policy
 Designates
Vere as primary
beneficiary

30
Bill’s Will
“I bequest all life
insurance
proceeds to
my son, Chris
Shelton.”

31
Who gets
$100,000?
Vere?
 Bill’s son, Chris?

32
$100,000 Life
Insurance Proceeds
Vere
 Contractual

Designated
Beneficiary

33
Payable on Death
Designation (POD)
At death
ownership passes
to POD
beneficiaries
 No probate

34
Transfers on Death
(TOD) Registration
Stocks
 Bonds

35
Sole ownership
Mother
Dad
1/2
1/2
Single
Guy/Gal
36
What fraction, if any,
will brother receive?
Bachelor
Brother
No
will
Sister
Sister
Sister
Brother Brother
Niece Nephew Nephew
37
Right of Representation
Bachelor Sister
Brother
Sister
Brother
1/4
Brother
1/4
Niece Nephew Nephew
1/4
1/8
1/8
38
Question
What % of Montana
farm/ranch operations
are titled in sole
proprietorships/
family?

39
Business Arrangements-2002 Census, Montana
Sole proprietorship/family 81%
Partnership
Corporation
Estates/trusts, other
8%
10%
2%
*over 100% due to rounding
40
Married Couple

John & Mary
farm (land,
equipment, etc)
John’s name
only
41
Auto Accident
John dies first
 Mary dies

3 days
later
42
Question
Who
receives the
property?

43
Who Receives?
John
dies first
Mary dies
3 days
later
44
Whose relatives
receive?????
John dies first
 Mary dies 3rd day


John’s relatives
receive property
45
Montana Survival
Requirement
 An
heir must survive
120 hours

Otherwise, treated
as predeceasing
the decedent
46
What if ???
John dies first
 Mary dies

6 days later
Mary’s relatives receive
property

47
Sole Ownership

John & Mary need a
written will
if
they want to
control who
receives the property
48
Parents have 3 children
HUSBAND
son
Son
WIFE
Son
Son
Son
Daughter
son
Daughter Daughter
Son
49
Question: What fraction, if
any, does grandchild receive?
HUSBAND
Son
Son
?
WIFE
Daughter
grandchild grandchild grandchild grandchild grandchild grandchild
50
Survivors : 3 children
Dad
Mom
1/3 1/3
1/3
Son
Son
Son
Daughter
Daughter
Son
51
Survivors: two children &
grandchild
HUSBAND
Son
1/3
WIFE
1/3
Son
Son
1/3
Daughter Daughter
Son
52
Survivors : one child &
grandchildren
HUSBAND
Son
WIFE
Son
1/3
1/3 1/6 1/6
53
Survivors : One child &
grandchildren
HUSBAND
Son
1/3
WIFE
1/3
Son
Son
?
Daughter
1/9 1/9 1/9
54
Survivors : Grandchildren
HUSBAND
Son
Son
WIFE
Daughter
1/6 1/6 1/6 1/6 1/6 1/6
55
JOINT TENANCY
Real Property
56
JOINT TENANCY
On death of
either, survivor
takes all

57
JOINT TENANCY
HUSBAND
CHILD A
HIS
CHILD B
HIS
WIFE
CHILD C
HERS
CHILD D
HERS
58
Husband dies: Survivors,
wife surviving joint tenant;
his children
HUSBAND
WIFE
CHILD A CHILD B
HIS
HIS
CHILD C CHILD D
HERS HERS
59
Wife dies with all property
HUSBAND
CHILD A
HIS
CHILD B
HIS
WIFE
CHILD C
HERS
CHILD D
HERS
60
Remarriage with husband
as joint tenant
husband
HUSBAND
CHILD A
HIS
CHILD B
HIS
WIFE
CHILD C
HERS
CHILD D
HERS
61
Couple: property in
joint tenancy

Tim

Sharon
62
Joint Tenancy
Tim dies
first


Sharon dies
3rd day
63
Question????
Who
receives the
property?

64
Joint Tenancy
Tim dies
first


Sharon dies
3rd day
65
If no children
Tim’s  1/2 Sharon’s
parents
parents

1/2
66
Survival Requirement
Joint Tenancy
If neither joint
tenant survives the
other by 120 hours,
property is split equally
among their heirs

67
Survivor lives beyond
120 hrs
Tim
first
dies

Sharon dies
6th day
68
Property Distribution-Sharon dies on 6th day
All to Sharon’s parents
69
Survivor lives beyond 120
hrs
Tim
dies
6th day
Sharon
dies first
70
Property Distribution: Tim
survives Sharon beyond 120
hours
All to Tim’s parents
71
Consequences of
joint tenancy
 All
to Tim’s parents
 All to Sharon’s parents
 1/2 to Tim’s parents
& 1/2 to Sharon’s
parents
72
Dad & Son: Property
in Joint Tenancy
73
Both Married
Dad
has wife
Son
has wife
74
Truck Accident
Dad dies
first


Son dies
3rd day
75
Team Question
 Who
receives the
property?
76
Truck Accident
Dad dies
first


Son dies
3rd day
77
Property Distribution

1/2 dad’s
wife

1/2 son’s
wife
78
Survivor Lives Beyond
120 Hrs

Dad
dies first
Son dies
th
6 day

79
Property Distribution-son Dies on 6th Day
All to son’s wife
80
Survivor Lives Beyond
120 Hrs
Dad
dies
th
6 day
Son
first
dies
81
Property Distribution: Dad
Survives Son Beyond 120
Hours
All to dad’s wife
82
Consequences of
Joint Tenancy
 All
to dad’s wife
 All to son’s wife
 1/2 to dad’s wife & 1/2
to son’s wife
83
JT Title reads
John Doe and
Mary Doe as Joint
Tenants with Right of
Survivorship and not
as Tenants in
Common

84
What is the value of John’s estate
for Federal Estate Tax purposes?
$1,000,000 Revocable Living Trust
$
100,000 Saving Bonds/POD
Wife
$ 150,000 Joint Tenancy/Son
$ 250,000 Life Insurance Policy
$ 500,000 Tenancy in Common
with Wife
85
Gross Estate: Property
owned by decedent
Real estate, stocks,
bonds, bank accounts,
personal property, personal
effects, assets in revocable
living trust
86
Value included
Fair market
value at
date of
death
87
Team Question
Value
of John’s estate?
$1,000,000
Living Trust
Included
88
Team Question
Value
of John’s estate?
$100,000
Saving
Bonds/POD
Wife
Included
89
Team Question
Value
of John’s estate?
$150,000
Joint
Tenancy/Son
Included,
unless
contribution shown
90
Team Question
Value
of John’s estate?
$250,000
Life
Insurance Policy
Included
91
$1.5 Million Estate
$250,000 Policy
2005
ParentValue
Owned $1,500,000
Estate
Insurance
+ 250,000
Taxable Estate $1,750,000
92
Parent Owned Policy-2005
Estate Value
$1,500,000
Insurance
+ 250,000
Taxable Estate $1,750,000
Tax
668,300
Applicable Credit 555,800
Estate Tax
$112,500
93
$1.5 Million Estate 2005
Child Owner of Policy
Estate Value
Insurance
Taxable Estate
Tentative Tax
Applicable Credit
Estate Tax
Parent
Child Owned
Own
$1,500,000
$1,500,000
250,000
0
$1,750,000
$1,500,000
668,300
555,800
555,800
555,800
$112,500
0
94
Federal Estate Taxes -$250,000 policy
 Adult
child
as owner of
policy save
$112,500
95
Team Question
Value
of John’s estate?
$500,000
Tenancy in
Common with spouse
$250,000 included
96
What is the value of John’s estate
for Federal Estate Tax purposes?
$1,000,000 Revocable Living Trust
$
100,000 Saving Bonds/POD
Wife
$ 150,000 Joint Tenancy/Son
$ 250,000 Life Insurance Policy
$ 500,000 Tenancy in Common
with Wife ($250,000)
1,750,000 Value of estate
97
John’s Estate
Value = $1,750,000
Exclusion
$1,500,000
***$112,500
due in tax
98
Sole Ownership-Surviving
spouse
who takes
unlimited
marital deduction
99
$3 Million Estate (2005)-Unlimited Deduction
Husband
Estate Value
$3,000,000
Marital Deduct
$3,000,000
Taxable Estate
0
Tentative Tax
0
Applicable Credit $555,800
Estate Tax
0
100
Wife:
$3 Million 2005
Estate Value
$3,000,000
Marital Deduct
0
Taxable Estate
$3,000,000
Tentative Tax
$1,265,800
Applicable Credit $555,800
Estate Tax
$710,000
101
Develop Estate Plan

Objectives
Minimize
taxes
 Make sure property
gets to the children
102
Plan A:

Dad leaves Mom
amount equal to
applicable exclusion
 Remainder to kids
103
Use Dad’s Applicable
Exclusion on 3M Estate
Estate Value
$3,000,000
Marital Deduct $1,500,000
Taxable Estate
$1,500,000
Tentative Tax
$555,800
Applicable Credit $555,800
Estate Tax
0
104
Mom’s Estate
Husband
Estate Value
$1,500,000
Marital Deduct
0
Taxable Estate
$1,500,000
Tentative Tax
$555,800
Applicable Credit $555,800
Estate Tax
0
105
Plan B:
QTIP Trust
Amount
of
exclusion/credit
106
Use Dad’s Applicable
Credit on 3M Estate
Husband
Estate Value
$3,000,000
Q-tip Trust
$1,500,000
Taxable Estate
$1,500,000
Tentative Tax
$555,800
Applicable Credit $555,800
Estate Tax
0
107
Mom’s Estate
Husband
Estate Value
$1,500,000
Marital Deduct
0
Taxable Estate
$1,500,000
Tentative Tax
$555,800
Applicable Credit $555,800
Estate Tax
0
108
Estate Size $3,000,000
Tax Savings
With Planning

$710,000
109
Written
Will

MT
198906
110
Question
What
% of
Americans
die without a
written will?
111
7 out of 10 do not
have a will
112
Age influence
Age



50 - 54
70 - 74
80 +
Percent
44%
75%
85%
113
Heinrich Heine
Made his wife sole
beneficiary on the
condition that she
remarry because then
“there will be at least one
man to regret my death”
114
Dad’s Will
“To my son I leave the
pleasure of earning a living.
For 25 years he thought the
pleasure was mine. He was
mistaken.”
115
Fees
Personal
Representative
 Attorney

“reasonable
compensation”
116
Question
What is the
maximum fee
(in dollars) allowed
by Montana law to
an attorney to settle a
$200,000 estate?

117
Personal Representative Fee
Based on Value of Estate

3% of first
$40,000

2% excess
$40,000
118
Attorney
1 1/2 times
allowable to personal
representative
119
Probate Compensation
$200,000 estate
 PR
$4,400
 Attorney
$6,600
120
Hourly Fee Basis
Based on time involved
in settlement of estate
 Ask attorney about
method used

121
Probate Compensation
$1,000,000 estate
 PR
 $20,400
 Attorney

$30,600
122
Federal
Gift Tax
123
Question
What is the
amount that can
be gifted yearly
without a federal
gift tax?

124
Annual Gifts $11,000
To as many people
as you wish
 Tax free

125
Gift-splitting
Spouse may join
in gift

$22,000
126
Marsha A. Goetting
MSU Extension Family
Economics Specialist
P. O. Box 172800
Montana State University
Bozeman, MT 59717
406-994-5695
127
Marsha A. Goetting
goetting@montana.edu
128