The document summarizes recent changes to federal estate, gift, and generation-skipping transfer tax laws, and implications for estate planning. The federal estate and gift tax exemption was made permanent at $5.25 million per person but will be adjusted for inflation. This means fewer estates will owe estate taxes, and more lifetime gifting will occur. The generation-skipping transfer tax exemption was also set at $5.25 million. The top transfer tax rate increased to 40%. Portability of exemptions between spouses continues to benefit married couples. The document stresses starting succession planning discussions now to decide how to pass on a farm or business.

1. Taxes and Succession
Planning
By: Nick Reister, Attorney
nreister@shrr.com | (616) 458-8286

3. Estate Tax Exemption:
Post-Fiscal Cliff
• The federal estate tax exemption of $5,000,000
per taxpayer was made permanent. However,
in reality, it is not permanent, since that
amount is adjusted by cost-of-living.
• What this means:
– The “tax tail” no longer wags the dog.
– Very few people will be concerned about the
dreaded “death tax.”

4. Gift Tax Exemption
• The federal gift tax exemption is still unified
from 2010, with the federal estate tax
exemption.
• A taxpayer’s gift tax exemption is also
$5,250,000 for the 2013 calendar year.
• What this means:
– More lifetime gifting
– Shift lower income tax brackets

5. Generation Skipping Transfer Taxes
• The GST tax exemption is now set at
$5,250,000 for 2013.
– Part of the unified transfer tax exemption.
• What this means:
– “Dynasty” or multi-generational trusts may become
more popular.
– Substantial assets can be transferred to and held in
trust for several generations benefitting family
members.

6. Transfer Tax Rate
• The top marginal transfer tax rate increased.
– 35% to a flat 40% transfer tax.
• What this means:
– If someone passes away in 2013 with a taxable
estate of $5,500,000, a federal estate tax of 40%
will be imposed on the excess above $5,250,000.
($250,000 x 40% = $100,000 taxes)

7. “Portability” Continues
• Portability arises if one spouse dies without using his or her exemption,
the surviving spouse can use it.
($5.25 M x 2 = $10.5 M tax-free in 2013)
• What this means:
– It is beneficial to married couples who have a large amount of
wealth tied-up in retirement plans or annuities.
– Eliminates the need to divide assets between the spouses, and to
utilize separate Trusts. (Saves $)
– Enables many married couples to now adopt a Joint Trust and to
abandon the old “two Trust” conventional estate planning regime.
(Saves $)

8. Caution
Only thing “permanent” about this change is
that they will not “sunset”. As long as the
government is short on cash, all of this could
change.

9. Succession Planning
• Who will take over and what will happen to
the farm?
– Family members?
• Do they get along?
• Are they trained?
• Can they afford it?
– Key employees?
– Competitors? Fire sale?

10. Options for Your Plan
• Stockholder or Operating Agreements
• Separate entities for land, operations,
equipment, etc.
• Life insurance
• Trusts
• Offshore Captive Insurance Companies

11. Where Do I Start?
• Start talking about it (now) with:
– Spouse
– Family members
– Business Partners and Key Employees
– Attorney, CPA, Banker/Investment Advisor and
Insurance Agent

12. Topics to Discuss
• Who wants the farm?
• Who has the skills to run the farm?
• Who can afford the farm?
• Will you have enough liquid assets in your
trust and estate to allow the farm to operate
and eventually divide among your loved
ones?

13. Topics to Discuss (cont.)
• What do your corporate documents say? Are
they current and accurate?
• Will you “work ‘til you die” or slow down
before?
• How much income will you need for
retirement?

14. Thank you!
Questions? Don’t be a stranger:
Nick Reister, Attorney
nreister@shrr.com
(616) 458-8286