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  • Women Managing the Farm

    Conference-KansasBreakout Session 2

    TRUSTS (Advanced)

    Tim J. Larson, J.D., P.A.

    7570 W. 21st St. N.

    Building 1026, Suite C

    Wichita, KS 67205

    316-729-0100

    tim@timjlarsonlaw.com

  • Estate Planning for Farm Families - Business Succession Estate Planning The Basics Everyone

    Should Know

    What is Estate Planning?

    How does property pass after a death?

    Will you be incapacitated or need assistance or long term care?

    Will estate tax or some form of income tax affect your family?

    What are the most common mistakes, goals and concerns clients face in Estate Planning? What solutions are available?

  • Estate Planning: The Basics There are 4 ways to pass property upon a

    deathProperty owned in your own name Court Order (Probate)

    Joint Tenancy with RightOf Survivorship Surviving Joint

    Tenant(s)

    Beneficiary Designations(POD/TOD) Pursuant to designation

    Revocable Living TrustPursuant to Trust document

    Beware of the 2nd

    Death Trap

  • In order to understand the

    present-

    Lets take a look at the past few years of

    changing estate tax law, and the Tax Planning

    Techniques and Strategies of the last 25

    Years.

  • 5Federal Estate Tax Planning

    Under The

    Economic Growth and Tax Relief

    Reconciliation Act of 2001

  • 6Sunset Provision (This would

    become a big part of the Fiscal

    Cliff in 2012SEC. 901. SUNSET OF

    PROVISIONS OF ACT.

    (a) IN GENERAL- All provisions of, and amendments made by, this Act shall not apply

    (1) to taxable, plan, or limitation years beginning after December 31, 2010, or

    (2) in the case of title V, to estates of decedents dying, gifts made, or

    generation skipping transfers, after December 31, 2010.

  • 7Federal Estate and Gift Tax

    in 2002

    A top tax.

    An everything tax.

    Estate tax exemption based on year of death.

    Annual gift tax exclusion of $11,000 (in 2002) per recipient per calendar year.

    Rates range from 37% to 50% in 2002.

  • 8What Is Included in an Estate?

    Real Estate

    Personal Property

    Stocks, Bonds, Mutual Funds

    Bank Accounts

    Retirement Accounts

    Businesses

    Life Insurance

    Hint: Everything!

  • 9How Much Tax Will Be Owed?

    Add up the value of all of your assets.

    Subtract the exemption amount.

    Multiply the excess.

    Pay the tax within 9 months of death

    $ 1,100,000

    - 1,000,000 (in 2002)

    100,000

    x .37

    $ 37,000

  • 10

    Al & Bettys Plan: No Tax Plan ($1,100,000 Estate)

    1. Al dies

    2. Betty receives the

    entire estate

    3. No federal estate tax

    is imposed due to the

    unlimited marital

    deduction

    4. Betty dies

    5. The estate is now

    subject to federal

    estate tax because

    she has more than the

    exempt amount:

    $1,100,000

    - 1,000,000

    100,000 x .37 = $37,000

    Wow

    !

  • 11

    Al & Bettys New A-B Plan

    1. Al dies

    2. $1,000,000 is funded to the survivors (A) trust for Betty

    3. $100,000 is funded to the family (B) trust; Betty receives income and HEMS from the principal of this trust

    4. Betty dies

    5. The marital trust goes to the children without federal estate tax

    6. The family trust goes to the children without federal estate tax

    NO TAX DUE!

    (A savings of $37,000)

  • 12

    Al & Bettys New A-B Plan

    $1,100,000 Estate

    Family Trust

    $100,000

    Surviving Spouse

    Survivors Trust$1,000,000

    All income

    HEMS

    -Irrevocable

    -File 706

    -Tax number

    Children receive the

    benefit of the entire

    $1,100,000

  • 13

    Federal Estate Tax ExclusionOutside Grantors

    Estate

    Inside

    Grantors Estate

    2009:

    $3,500,000

    2006:

    $2,000,000

    2004:

    $1,500,000

    2002:

    $1,000,000

    2001: $

    675,000

    Value

    exceeds

    exclusion

  • 14

    Beyond the Exclusion

    Exclusion

    Outside

    Grantors Estate

    Inside

    Grantors Estate

    Beyond the exclusion,

    every $1 in growth is

    subject to both income

    tax and estate tax!

  • 15

    Estate Tax Planning TechniquesInside

    Grantors Estate

    Outside

    Grantors EstateReduce

    Reduce growth

    Reduce value

    Maintain

    control

    and.

    Increase

    growth and

    increase value

    (on the other

    side of the

    fence)

    Exclusion

  • 16

    The plan used to be-Remove

    Value and Reduce GrowthInside Grantors

    Estate

    Outside

    Grantors Estate

    Irrevocable

    Trust

    Irrevocable trusts allow the

    Grantor to reduce growth

    and value in Grantors taxable estate.

    Control comes through the

    design of the Instruction

    Manual.

    Instruction Manual

    (Trust Agreement)

  • The planning focus is no longer

    on estate taxes for estates that are

    less than $5,430,000 for an

    individual

    or

    $10,680,000 for a married couple

    This is because only 1% of the population is

    affected by such a threshold.

  • What happened to all of the

    estate TAX planning?

    What happened at the top and the

    bottom of the fiscal cliff at the end

    of 2012? Was there a big splat!

    What is the rest of the story?

    OR

  • As the end of 2012 approached, the fear was that

    the Federal Gift and Estate tax exemption threshold

    of $5,120,000 was going to go back (sunset) to a

    $1,000,000 threshold at midnight, December 31st, 2012

    as a result of the sunset provision in the federal law.

    This was perceived by many as a one-time use it or lose it opportunity to make gifts. People ponderedwhether or not there would even be a claw back fromthe estate tax at death if a person attempted to use the

    gift tax exemption in 2012.

    There was much discussion and in the end there was

    much gifting.

    Fiscal Cliff

  • The Estate Planning World Has Changed

    Where are we now as a result of changes in

    both Kansas and Federal law?

  • State of Kansas-What has happened?

    Inheritance Tax was repealed in 1997

    Replaced with a Kansas Estate Tax for Estates in

    Excess of $1 Million, this tax was phased out at the

    end of 2009 and there has been no proposal in

    Topeka to reinstate an inheritance or state levelestate tax.

    Presently there is no death tax in Kansas.

  • Threshold

    1987-1997 Taxable Estate $ 600,000

    1998-2012 Taxable Estate (SUNSET) $1,000,000

    Effective Estate Tax Rate

    50%! (as much as 55%)

    Unless a client wanted to plan to die in 2010

    (the year there was no Federal Estate Tax)

    we all focused on the 2010 sunset amount for planning:

    $1,000,000 as the planning threshold for estate

    and gift taxes and a 50% estate tax rate.

    Estate Planning HAS BEEN

    Focused on Federal Estate Tax Avoidance

  • BUT, remember-

    The Estate Planning World Has Changed

    2013 ATRA: No SunsetTax Law is Permanent

    (until it is changed again).

    Unified Estate and Gift Tax

    Applicable Credit =

    $5,000,000 2011

    $5,120,000 2012

    $5,250,000 2013

    $5,340,000 2014

    $5,430,000 2015

    $10,860,000 married couple 2015

  • The applicable lifetime credit

    (a/k/a exemption or threshold amount

    before any tax is imposed)

    is indexed for inflation and will

    continue to increase annually. Living longer

    is good estate tax planning!

    Now, in 2015-Federal Estate Tax

    Planning is only Necessary for 1%

    of all Americans!

    Individual Threshold $ 5,430,000

    Marital Threshold $10,860,000

  • It is fair to say that the focus of those with

    taxable estates from 1986 until the end of 2012

    was on estate and gift taxes and avoiding those

    taxes.

    Where should we focus now, after ATRA?

    After ATRA there will need to be more focus

    on income tax issues in the planning because

    of the fact that the primary concern for most

    people will no longer be the estate tax.

    Where has the focus been?

    Estate Planning Focus on Estate Tax

  • What are the issues facing those that do not have estates

    that will be subject to federal estate tax?

    The non-tax issues have not changed.

    People are still going to focus on planning for retirement. People are still going to be faced with the possibility of

    becoming incapacitated and/or having diminished

    capacity.

    People will be concerned how to leave property for spouses and descendants.

    People are still going to be faced with the inevitability of death and what to do with their $s and other stuff.

    After ATRA-Estate Planning Focus on Income Tax

  • Again, what hasnt changed on the estate planning side?

    The need to plan for the possibility of aging, retirement,

    incapacity, need for assistance, long-term care - both with

    finances and documents, powers of attorney, living wills, and

    other written plans and directions.

    People will continue to have a need for growth of assets and

    income.

    People will continue to want to plan fo