ESTATE PLANNING:WHAT SHOULD I DO NOW?
Missouri Pork Expo 2013
BRENT E. HADENCONNIE S. HADEN
WHY SHOULD I PLAN NOW?
• TAXES aren’t the only reason
• The State of Missouri has a default plan
• Minor Children
• Second Marriage
• Heirs involved in Farming Operation
• You Own a Farm!
GOALS• Minimize Taxes
• Avoid Expensive and Time-Consuming Probate
• Income and Security During Lifetime
• Involve the Next Generation
• Pay for Long-Term Care Expenses (Nursing Home)
• Avoid Family Conflict
• Keep Your Operation Going
• Proper Transfer of Your Assets at Death
• Send your money where YOU want it to go
Property Ownership• Individual Name
• Joint Ownershipo Joint Tenants with Right of Survivorship
o Tenants in Common
• Beneficiary Designationo Beneficiary Deed
o Life Insurance, IRA, Investment Accounts
• Pay-on-Death (POD) or Transfer-on-Death (TOD)
• Trusts
Unique Challenges for Farmers and Ranchers• Unpredictable Income and Growth
• Land Values
• Multi-Generational Involvement
• Equal vs. Fair
• Control
A Word About Taxes . . .
• Estate Taxeso Exemption = $5.25 Milliono Adjusted for Inflationo Rate = 40%o Portability
• Gift Taxeso Exemption = $5.25 Milliono Rate = 40%o Annual Exclusion = $14,000
• Generation Skipping Transfer Taxeso Exemption = $5.25 Milliono Rate = 40%
• Income Taxes
Tools of Estate Planning
• Revocable Trust• Will• Power of Attorney• Health Care Directive• Irrevocable Trust• Business Entity• Lifetime Gifts• Insurance
Tool #1: REVOCABLE TRUST
• IT CAN BE CHANGED
• “Living Trust” or “Revocable Living Trust”
• THE WORK HORSE of the Estate Plan
o Provides Organization
oDisability Plan
o Privacy
oAvoids Probate
o Simplifies Administration
Tool #1: REVOCABLE TRUST
• Like a Will, it provides instructions about the distribution of assets at your death
• Property is treated as your own for all purposes
• Couple with Pourover Will
Creating a Revocable Trust
1. Sign a Trust Agreement – “Settlor” or “Grantor”
2. In Trust Agreement, appoint yourself or someone else to “manage” the trust property – “Trustee”
3. Trust Agreement states how the property is managed during your life and after your death
4. Trust can be changed or dissolved at any time
5. COORDINATE TITLE – Important Step!
Tool #2: WILL• Not Effective Until Death• DOES NOT AVOID PROBATE• Place to name a guardian for minor children• When combined with REVOCABLE TRUST, it is
known as a POUROVER WILL• Provides instructions about how your assets
are to be distributed at your death• Can also be used to create trusts that are
effective after death (“Testamentary Trust”)
Tool #3: DURABLE POWER OF ATTORNEY
• Gives another person (the “Attorney-in-Fact” or “Agent”) the authority to act for you in FINANCIAL MATTERS
• Useful in case of Disabilityo “DURABLE” just means it survives incapacity
• Effective Immediately or Upon Disability
• ONLY effective during lifetime
• BE CAREFUL – Very Powerful
Tool #4: HEALTH CARE DIRECTIVE
• Also called: Living Will, Advance Directive, Durable Power of Attorney for Health Care
• Generally does 2 things:o “Pull the Plug”o Name someone to make health care decisions on your behalf
• ONLY effective if you aren’t able to express your own wishes
• Carefully consider your AGENT• Discuss your wishes with your Agent
Tool #5: IRREVOCABLE TRUST• “IRREVOCABLE” means it can’t be changed easily
• Very Specific Useso Gifting Plan
o Removing Assets from Estate for Long Term Care or Estate Taxes
o Life Insurance (ILIT = “Irrevocable Life Insurance Trust”)
• SHOULD ONLY BE DONE WITH CAREFUL CONSIDERATIONo Loss of Control
o Loss of Income
Tool #6: BUSINESS ENTITY
• TYPE OF ORGANIZATION
o Sole Proprietorship
o Partnership or Limited Partnership
o Limited Liability Company
oCorporation
o S-Corportion
Tool #6: BUSINESS ENTITY
• ORGANIZATION
• LIMIT LIABILITY
• EASE OF TRANSFER
• DISCOUNT GIFTS
Tool #6: BUSINESS ENTITIESWhat a Business Entity
Will NOT Do:o Solve all your problemso Protect you from ALL Liability
Tool #7: LIFETIME GIFTS
• Avoid Tax• Gift Appreciation• Gift Income• Gift Involvement• Use Annual Exclusion• Satisfaction of Knowing Property
Goes Where you Want
Basis• If property gifted during lifetime – child
receives parents’ basis = “Transferred Basis” or “Carry-over Basis”
• If property transferred at death – child receives a “Stepped-Up Basis” to the fair market value of the property at the parent’s date of death
• DON’T SELL
Tool #8: INSURANCE• Life Insurance
o Can be used to fund other parts of plan
o Consider an ILIT
• Disability Insurance
• Long-Term Care Insuranceo Combination Products
• Liability Insurance
EACH PLAN IS UNIQUE
“The diligent farmer plants
trees, of which he himself will never
see the fruit.”- Cicero
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