A Wells Fargo Business AN ESTABLISHED PARTNER Introducing the Power of Appointment Support Trust An Innovative Approach to Tax Planning 1 © 2016 Wells Fargo Bank, N.A. All rights reserved. For public use. Patrick E. Beaudry | Director, Abbot Downing Lester B. Law | Director, Abbot Downing

Agenda 2 I.The “Sandwich” (Wealth Creator) Generation II.Estate Exclusion and Tax Rates III.Impact of Tax Legislation IV.Benefits of the POAST V.POAST Suitability VI.Downstream Planning: The Traditional Approach VII.The POAST: Structure and Implementation VIII.The POAST: Example IX.Expanded Applications X.Additional Resources

THE “SANDWICH” (WEALTH CREATOR) GENERATION G1 = Senior Generation Family Member –Low wealth –Very little gifting, high remaining exclusion G2 = Current Generation “Wealth Creator” –Significant wealth –Desire to provide for G1 and future generations G3/G4 = Children/Future Generations 3 The Family

THE “SANDWICH” (WEALTH CREATOR) GENERATION (cont.) G2’s Concerns –Desire to support G1 –Desire to transfer wealth to G3/G4 –Minimize total transfer tax (estate/gift/GST) and income tax Arrangement –The Power of Appointment Support Trust (POAST) ›Provide Support for G1, when needed ›Capitalize on unused transfer exclusions of G1 ›Date-of-Death basis adjustment for appreciated assets 4

ESTATE EXCLUSION AND TAX RATES 5

IMPACT OF TAX LEGISLATION The estate tax is potentially all but eliminated for most individuals 99.8% of individuals* will have some or all of their estate tax exclusion amounts (and GST exemption) expire worthless at their death. The estate tax savings of the $5.45 million estate exclusion is $2,125,800 GST exemption is worth considerably more Increased importance of income tax minimization Decreased differential between federal income (+ surtax) and estate tax rates 6 * Source: Joint Committee on Taxation 2015

BENEFITS OF THE POAST Capture Otherwise Wasted Exclusions/Exemptions Increased exclusion has significant wealth transfer value Applying GST exemption can enable wealth transfer to multiple generations Mitigate/Eliminate Income Tax on Appreciated Assets Date-of-death basis adjustment eliminates capital gains tax at the death of G1 25+ years earlier than traditional lineal planning Relative Simplicity POAST complements existing planning – no changes to current structure Additional exempt assets are added to existing planning structure Expanded Opportunities Can be used with Aunts, Uncles, Grandparents, Cousins, In-laws, etc. Can leverage other planning strategies (discussed later) 7

POAST SUITABILITY If several of the following factors are present, the POAST may be appropriate: The G1 beneficiary will likely not have a taxable estate G1 is elderly and/or has a shorter than normal life expectancy G2 desires to assist G1 financially G2 wishes to transfer assets dynastically for the benefit of their family G2 will likely have a taxable estate G2 will likely use all of their available GST tax exemption during life or at death G2 has lower basis assets and would not mind parting with those assets to fund the POAST Transfers to the POAST and parting with the transferred assets will not impact G2’s lifestyle 8

DOWNSTREAM PLANNING: THE TRADITIONAL APPROACH Power of Appointment (POA) – Most common method of providing flexibility to meet changes in circumstances –Limited Power of Appointment (LPOA) ›Minimal or no transfer or income tax consequences ›Excludes the “forbidden four”: (1) the power holder, (2) his/her estate, (3) his/her creditors, or (4) the creditors of his/her estate –General Power of Appointment (GPOA) ›GPOAs trigger transfer tax inclusion (estate and GST purposes) ›Assets subject to a GPOA will receive a date-of-death cost basis adjustment ›Must include at least one of the “forbidden four” 9 Emphasis is on transferring assets in flexible trusts for downstream beneficiaries

THE POAST: STRUCTURE AND IMPLEMENTATION The G1 beneficiary is granted a testamentary GPOA, equal to G1’s remaining estate and/or GST exclusion at death –The GPOA exercise may also be contingent on third party approval –Caution – State, Commonwealth and D.C. creditor rights Assets subject to GPOA, if unappointed, fund trusts for G3/G4 (or are added to existing trusts). Assets not subject to GPOA remain in non-exempt trusts for G3 with typical contingent GPOA language. –Language should be included to split the trust for G3/G4 to preserve the GST inclusion ratio The trust can remain a grantor trust with respect to G2 (further future leverage) –If the GPOA is unexercised –If GPOA is exercised, the trust becomes a non-grantor trust 10 Structure

THE POAST: STRUCTURE AND IMPLEMENTATION (cont.) 11 Implementation 5 3 Wealthy individual (G2) wishes to provide support for an aging family member (G1) with very modest wealth G2 transfers assets to a POAST for G1 (may incur gift tax) Distributions are made to G1 for his/her support, when needed At G1’s death, assets subject to GPOA are included in G1’s estate and receive a date of death basis adjustment, potentially eliminating income tax on appreciated assets G1’s unused GST exemption can be applied to included assets, allowing these assets to benefit multiple generations without additional transfer tax (trading gift tax for GST exemption) 421

THE POAST: EXAMPLE 12 Traditional Planning Traditional Planning with POAST Assets Estate Tax $4 MM Non GST Exempt $1 MM GST Exempt $10 MM POAST $5 MM Sr. Gen ($ 0) Donor ($15 Million) Children ($11 Million) Assets Estate Tax $4 MM Non GST Exempt $6 MM GST Exempt $5 MM Sr. Gen ($ 0) Donor ($15 Million) Children ($11 Million) $ 0 Estate Assets $10 MM Estate Assets $15 MM

EXPANDED APPLICATIONS The POAST structure can be expanded to implement/complement additional planning strategies including: Assets with significant appreciation potential Grantor Retained Annuity Trust (GRAT) Residual Life Insurance on the Donor May be used to enhance tax benefits of older irrevocable trusts depending on the trust language 13

ADDITIONAL RESOURCES White Paper Power of Appointment Support Trust (POAST): An Innovative Approach to Transfer Greater Wealth and Reduce Income Taxes Trust and Estates Magazine (Dec. 2015) Introducing the Power of Appointment Support Trust 14

Q&A 15

Investment and Insurance Products: Are NOT insured by the FDIC or any other federal government agency Are NOT deposits of or guaranteed by the Bank of any Bank affiliate MAY Lose Value A Wells Fargo Business DISCLOSURES Abbot Downing, a Wells Fargo business, provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. The information and opinions in this report were prepared by Abbot Downing. Information and opinions have been obtained or derived from sources that we consider reliable but we cannot guarantee their accuracy or completeness. Opinions represent Abbot Downing’s opinions as of the date of this report and are for general information purposes only. Abbot Downing does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report. Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared. This information is for educational purposes only and should not be used or construed as financial advice, an offer to sell, a solicitation of an offer to buy, or a recommendation of any security. Wells Fargo does not guarantee that the information supplied is complete or timely, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. © 2016 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. NMLSR ID

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