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

-