1 farm succession planning. 2 marsha goetting ph.d., cfp, cfcs èprofessor & extension family...

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Farm Succession Farm Succession PlanningPlanning

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Marsha GoettingMarsha GoettingPh.D., CFP, CFCSPh.D., CFP, CFCSProfessor & Extension Family Economics SpecialistDepartment of Agricultural Economics & Economics

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Special Request from:

•Members of Planning Committee

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Make your estate planning presentation!!!!!!

LivelyLively InterestingInteresting ExcitingExciting

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Don’t want to think about

DeathDeathDyingDying

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ExperimentExperimentSuccession/Estate Succession/Estate

Planning Team Planning Team ContestContest

Valuable Valuable prizes !!!prizes !!!

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3 - 5 people3 - 5 people

Divide into Groups

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First Decision Select TeamSelect Team NameName30 Seconds30 Seconds

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Second Decision –Select Team Runner Each timeEach time your your

team team responds to responds to a question a questionWrite team name & Write team name &

answer on sticky answer on sticky note note

Ravalli Ravalli RaidersRaiders

50%50%

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RewardsRewards““Winning Winning Team”Team” gets to select gets to select prizes at the end prizes at the end of the sessionof the session

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“Who” Gets Your Property When You Die????

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State Law Determines

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Titled Real Property includes:

LandLand Home Home

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Titled Personal Property includes: Savings & Checking Savings & Checking

AccountsAccounts Certificates of DepositsCertificates of Deposits Motor VehiclesMotor Vehicles Stocks & Bonds Stocks & Bonds

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Property passes by: Contract Law Contract Law Written WillWritten Will Law of Decent & DistributionLaw of Decent & Distribution Trust Agreement Trust Agreement

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Contract Law Beneficiary DesignationsBeneficiary Designations

Life insurance Life insurance AnnuitiesAnnuities IRAsIRAs KeoghKeogh

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Life Insurance

BillBill VereVere

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Beneficiary Bill has $100,000 Bill has $100,000

life insurance policylife insurance policy Designates Vere as Designates Vere as

his primary his primary beneficiarybeneficiary

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Bill’s Will ““I bequest all myI bequest all mylife insurance life insurance proceeds to my son, proceeds to my son, Chris Shelton.”Chris Shelton.”

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Who gets $100,000?

Vere, wife?Vere, wife? Chris, son?Chris, son?

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$100,000 Life Insurance Proceeds VereVere Contractual Contractual arrangement arrangement Designated BeneficiaryDesignated Beneficiary

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Estate Planning Task Determine who Determine who are the are the beneficiaries of beneficiaries of your life insurance your life insurance policy/policiespolicy/policies

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Payable on Death Designation (POD)Accounts at financial Accounts at financial

institutionsinstitutions At death ownership At death ownership

passes to POD passes to POD beneficiariesbeneficiaries

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Transfers on Death (TOD) Registration

Stocks Stocks BondsBonds Mutual fundsMutual funds

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Dying Without a Will: Who Receives Your Property?

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PERSONAL PROPERTY

No matter where located, distributed according to laws of state in which decedent had domicile at time of death.

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REAL PROPERTY

Located outside state of residence distributed according to that state’s intestacy laws.

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Estate Planning Task What & WhereWhat & Where

Determine in whose Determine in whose name is on title of real & name is on title of real & personal propertypersonal property

LocationLocation

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Business Arrangements--2002 Census, Washington

Sole proprietorship/familySole proprietorship/family 85% 85%PartnershipPartnership 6% 6% CorporationCorporation 8% 8%Estates/trusts, other 1%Estates/trusts, other 1%40,033 farms40,033 farms

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Single PersonProperty in one Property in one

person’s name person’s name only.only.

Part of owner’s Part of owner’s estate upon estate upon death.death.

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Single PersonMother

1/2Dad

1/2

Single Guy/Gal

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What fraction (if any) will brother receive?

BachelorBrother

N iece

Sister

Nephew Nephew

SisterS ister Brother Brother

No Written Will

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Team Question What share What share if any does if any does Bother Bother receive?receive?

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What fraction (if any) will brother receive?

BachelorBrother

N iece

Sister

Nephew Nephew

SisterS ister Brother Brother

No Written Will

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BachelorBrother

Niece

1/4

Sister

Nephew

1/8Nephew

1/8

Sister Brother

1/4Brother

1/4

?

Right of Representation

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Married Couple John & MaryJohn & Mary

property titledproperty titled

John’s name only John’s name only (sole (sole proprietorship)proprietorship)

• No childrenNo children

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Auto Accident John dies firstJohn dies first Mary diesMary dies

3 days3 days later later

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Team Question Who Who receives the receives the property?property?

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Who Receives? John dies firstJohn dies first Mary diesMary dies

3 days3 days later later

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Who receives????? John dies firstJohn dies first Mary dies 3rd DayMary dies 3rd Day

Mary’s relatives receive propertyMary’s relatives receive property

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Need for will John & MaryJohn & Mary

need a written need a written will will

if they want to if they want to control who control who receives their receives their propertyproperty

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JOINT TENANCY Real Property

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JOINT TENANCY On death of On death of either, either, survivor survivor takes alltakes all

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JOINT TENANCY

CHILD AHIS

CHILD BHIS

HUSBAND

CHILD CHERS

CHILD DHERS

WIFE

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Husband dies: Survivors, wife surviving joint tenant; his children

CHILD AHIS

CHILD BHIS

HUSBANDCHILD C

HERSCHILD D

HERS

W IFE

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Husband dies: Survivors, wife surviving joint tenant; his children

CHILD A0

CHILD B0

HUSBANDCHILD C

HERSCHILD D

HERS

All

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Wife dies with all property

C H IL D AH IS

C H IL D BH IS

H U S B A N D

C H IL D CH E R S

C H IL D DH E R S

W IFE

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Wife dies with all property

C H IL D A

0C H IL D B

0

H U S B A N D

C H IL D C

50%C H IL D D

50%

W IFE

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Remarriage with husband as joint tenant

C H IL D A

0C H IL D B

0

H U S B A N D

C H IL D C

0C H IL D D

0

W IFE

husband

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Husband dies: Survivors, wife surviving joint tenant; his children

CHILD AHIS

CHILD BHIS

HUSBANDCHILD C

HERSCHILD D

HERS

W IFE

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Life Estate

CHILD AHIS

CHILD BHIS

HUSBANDCHILD C

HERSCHILD D

HERS

W IFE

Remaindermen

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Estate Planning Task Review titles Review titles on real on real propertyproperty

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Family Tree

Son

Son

Son Son Son

Son

HUSBAND

Daughter Daughter Son

Daughter

W IFE

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Question: What fraction, if any does grandchild receive?

grandchild

Son

grandchild grandchild

Son

HUSBAND

grandchild grandchild grandchild

Daughter

W IFE

?

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Survivors : 3 children

S on

1/3S on S on

1/3

Dad

D au g hte r D au g hte r S on

1/3

Mom

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Survivors : two children & grandchildren

1/3

S on

Son Son

1/3

H U S B A N D

D au gh ter D au gh ter Son

1/3

W IFE

Right of Representation

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Survivors : one child & grandchildren

1/3

S on

1/6 1/6

S on

H U S B A N D

1/3

W IFE

Right of Representation

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Survivors : One child & grandchildren

1/3

S on

Son Son

1/3

H U S B A N D

1/9 1/9 1/9

D au g h te r

W IFE

?

Right of Representation

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Survivors : Grandchildren

1/6

S on

1/6 1/6

S on

H U S B A N D

1/6 1/6 1/6

D au g h te r

W IF E

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Written Will

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Question What % of What % of Americans die Americans die without a without a written will?written will?

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7 out of 10 do not have a will

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Requirement Sound mindSound mind

Know nature of propertyKnow nature of property Know those to whom Know those to whom

he/she would give he/she would give propertyproperty

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““Being of Being of sound mind I sound mind I spent it all.”spent it all.”

Here is your DAD’S will

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MAKING A WILL Undue Undue InfluenceInfluence

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Adopted Children

Have same rights as Have same rights as your biological your biological children children

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MUST a parent leave his/her children anything?

NO!NO!

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“To my son I leave the pleasure of earning a living. For 25 years he thought the pleasure was mine. He was mistaken.”

Dad’s Will

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Heinrich HeineMade his wife sole beneficiary on the condition that she remarry because then

“there will be at least one man to regret my death”

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Non-Titled Property

Owner is Owner is not not identified with a identified with a written documentwritten document

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Non-titled property: GunsGuns ToolsTools FurnitureFurniture DishesDishes Linens & needleworkLinens & needlework CollectionsCollections

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Personal Belongings Wedding photographsWedding photographs Baseball gloveBaseball glove BooksBooks Christmas decorationsChristmas decorations JewelryJewelry

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WashingtonSeparate Listing Tangible Personal Property

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Separate Listing

ItemItemmy Grandma Ray’s Opal Ring my Grandma Ray’s Opal Ring my my

niece, Bethany Buczinskiniece, Bethany Buczinski

my Montana Sapphire Ringmy Montana Sapphire Ring my my friend, Barbara Millerfriend, Barbara Miller

DateDate SignatureSignature

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Where to keep a will?? Clerk of Court officeClerk of Court office Attorney’s officeAttorney’s office Safe deposit boxSafe deposit box Don’t store original at homeDon’t store original at home

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Where is the will?Where is the will? Inform family Inform family members or personal members or personal representativerepresentative

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Wills ????

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Question What % of deceased What % of deceased persons’ estates paid persons’ estates paid a federal estate tax a federal estate tax in 2003?in 2003?

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Federal Estate Tax

2 %2 %

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Federal Estate Tax Exclusions & Credits

Year Applicable Exclusion

Applicable Credit

2006-08 2,000,000 780,800 2009 3,500,000 1,455,800

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Planning Technique

Die inDie in

appropriateappropriate

year !!!year !!!

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Single Person-- Applicable Credit Year 2006-2008

Taxable Estate $2,000,000 Tentative Tax $780,800 Applicable Credit

$780,800

Estate Tax 0

Year 2006-2008

Taxable Estate $2,000,000 Tentative Tax $780,800 Applicable Credit

$780,800

Estate Tax 0

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Spouse takes all Spouse takes all Surviving spouse Surviving spouse who takes unlimited who takes unlimited marital deduction marital deduction

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$4 Million Estate (2007)--Unlimited Deduction Husband

Estate Value $4,000,000

Marital Deduct $4,000,000

Taxable Estate 0

Tentative Tax 0

Applicable Credit $780,800

Estate Tax 0

Husband

Estate Value $4,000,000

Marital Deduct $4,000,000

Taxable Estate 0

Tentative Tax 0

Applicable Credit $780,800

Estate Tax 0

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Wife: $4 Million 2007

Estate Value $4,000,000

Marital Deduct 0

Taxable Estate $4,000,000

Tentative Tax $1,700,800

Applicable Credit $780,800

Estate Tax $920,000

Estate Value $4,000,000

Marital Deduct 0

Taxable Estate $4,000,000

Tentative Tax $1,700,800

Applicable Credit $780,800

Estate Tax $920,000

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Instead take: Instead take: PartialPartial

equal to amount of equal to amount of exclusion/creditexclusion/credit

Leave rest to family trust with spouse Leave rest to family trust with spouse income income

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Use Dad’s Applicable Exclusion on 4M Estate Husband

Estate Value $4,000,000

Marital Deduct $2,000,000

Taxable Estate $2,000,000

Tentative Tax $780,800

Applicable Credit $780,800

Estate Tax 0

Husband

Estate Value $4,000,000

Marital Deduct $2,000,000

Taxable Estate $2,000,000

Tentative Tax $780,800

Applicable Credit $780,800

Estate Tax 0

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Mom’s Estate Husband

Estate Value $2,000,000

Marital Deduct 0

Taxable Estate $2,000,000

Tentative Tax $780,800

Applicable Credit $780,800

Estate Tax 0

Husband

Estate Value $2,000,000

Marital Deduct 0

Taxable Estate $2,000,000

Tentative Tax $780,800

Applicable Credit $780,800

Estate Tax 0

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Estate Size $4,000,000

Tax Savings Tax Savings With PlanningWith Planning

$920,000$920,000

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Concern Concern What if….. What if….. Mom marries Mom marries the “hunk” the “hunk” down the road?down the road?

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Concern Concern What if……… What if……… Dad marries the Dad marries the “floosie” down “floosie” down the road?the road?

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Another approach Another approach

Q-tip TrustQ-tip TrustAmount of Amount of exclusion/creditexclusion/credit

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Use Dad’s Applicable Exclusion on 4M Estate

Husband

Estate Value $4,000,000

Q-tip Trust $2,000,000

Taxable Estate $2,000,000

Tentative Tax $780,800

Applicable Credit $780,800

Estate Tax 0

Husband

Estate Value $4,000,000

Q-tip Trust $2,000,000

Taxable Estate $2,000,000

Tentative Tax $780,800

Applicable Credit $780,800

Estate Tax 0

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Mom’s Estate Husband

Q-tip Trust $2,000,000

Marital Deduct 0

Taxable Estate $2,000,000

Tentative Tax $780,800

Applicable Credit $780,800

Estate Tax 0

Husband

Q-tip Trust $2,000,000

Marital Deduct 0

Taxable Estate $2,000,000

Tentative Tax $780,800

Applicable Credit $780,800

Estate Tax 0

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Estate Size $4,000,000

Tax Savings Tax Savings With PlanningWith Planning

$920,000$920,000

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Team QuestionTeam Question Value of John’s gross estate for federal estate tax Value of John’s gross estate for federal estate tax

purposes?purposes? $2,500,000 Living Trust$2,500,000 Living Trust $ 100,000 Saving Bonds/POD $ 100,000 Saving Bonds/POD Wife Wife $ 150,000 Joint Tenancy/Son$ 150,000 Joint Tenancy/Son $ 250,000 Life Insurance Policy$ 250,000 Life Insurance Policy $ 500,000 Tenancy in Common with spouse$ 500,000 Tenancy in Common with spouse

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Team QuestionTeam Question Value of John’s estate?Value of John’s estate?

$2,500,000 Living $2,500,000 Living TrustTrust

IncludedIncluded

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Team QuestionTeam Question Value of John’s estate?Value of John’s estate?

$100,000 Saving $100,000 Saving Bonds/POD Bonds/POD Wife Wife

IncludedIncluded

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Team QuestionTeam Question Value of John’s estate?Value of John’s estate?

$150,000 Joint $150,000 Joint Tenancy/SonTenancy/Son

All included, unless contribution All included, unless contribution shownshown

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Team QuestionTeam Question Value of John’s estate?Value of John’s estate?

$250,000 Life $250,000 Life Insurance PolicyInsurance Policy

IncludedIncluded

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Insurance Proceeds included in estate if: Receivable by estateReceivable by estate Receivable by another for Receivable by another for

benefit of estatebenefit of estate Decedent hadDecedent had incidents of incidents of

ownershipownership

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$2.75 Million Estate $250,000 Policy 2007Parent OwnedEstate Value $2,500,000

Insurance 250,000

Taxable Estate $2,750,000

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Parent Owned Policy-2007

Estate Value $2,000,000 Insurance + 250,000 Taxable Estate $2,250,000 Tax 895,000 Applicable Credit 780,800 Estate Tax $115,000

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$2.75 Million Estate Child Owner of Policy

Parent Own

Child Owned

Estate Value $2,000,000 $2,000,000 Insurance 250,000 0 Taxable Estate $2,250,000 $2,000,000 Tentative Tax 895,000 780,800 Applicable Credit 780,800 780,800 Estate Tax $115,000 0

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Federal Estate Taxes Saved on $250,000 policy

Adult child as Adult child as owner of policyowner of policy save save

$115,000 $115,000

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Team QuestionTeam Question Value of John’s estate?Value of John’s estate?

$500,000 Tenancy in $500,000 Tenancy in Common with spouseCommon with spouse

½ half included ½ half included $250,000$250,000

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John’s Estate John’s Estate Value $3,500,000Value $3,500,000

Exemption 2007Exemption 2007 $2,000,000$2,000,000***$690,500 ***$690,500 due in taxdue in tax

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Federal Gift Tax

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Question What is the What is the

amount that can amount that can be gifted yearly be gifted yearly without a federal without a federal gift tax?gift tax?

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Annual Gifts $12,000

To as many peopleTo as many people as you wishas you wish

Tax freeTax free

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Gift-splitting Spouse may join Spouse may join in giftin gift

$24,000$24,000

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Federal Gift Tax Exclusions & Credits

Applicable Exclusion

Applicable Credit

$1,000,000 $345,800

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RewardsRewardsWinning Winning TeamTeam

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Marsha A. Goetting MSU Extension Family

Economics Specialist

P. O. Box 172800P. O. Box 172800Montana State UniversityMontana State University

Bozeman, MT 59717Bozeman, MT 59717406-994-5695406-994-5695

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Marsha A. Goetting Marsha A. Goetting goetting@montana.edugoetting@montana.edu