Top 10 Estate Planning Ideas for 2012 Presented by: Robert S. Keebler, CPA, MST, AEP 420 S. Washington St. Green Bay, WI

Top 10 Estate Planning Ideas of Lifetime Gifts 2.Dynasty Trust 3.Installment Sales 4.Grantor Retained Annuity Trust (GRAT) 5.Charitable Remainder Trust (CRT) / Charitable Lead Trust (CLT) 6.Split-Dollar Arrangement 7.Domestic Asset Protection Trust (DAPT) 8.Spousal Access Trust 9.Stretch-IRA 10.Roth IRA Conversions © Keebler Tax & Wealth Education All Rights Reserved 2

1. Lifetime Gifts In 2011 and 2012, the lifetime gift exemption amount goes up to $5,000,000 For 2013 and beyond (barring Congressional action), the lifetime gift tax exemption will go back down to $1,000,000 Accordingly, there is a small window of opportunity to shift significant wealth to future generations gift and estate tax free 3 © Keebler Tax & Wealth Education All Rights Reserved

1. Lifetime Gifts Lifetime gifts, especially if they use the lifetime gift exemption, will shift greater wealth to future generations because post-gifting appreciation is removed from the grantor’s taxable estate Lifetime taxable gifts may make sense (in large taxable estates) because of the “tax exclusive” nature of the gift tax 4 © Keebler Tax & Wealth Education All Rights Reserved

1. Lifetime Gifts Tax Exclusive Nature of Gifts Example 5 © Keebler Tax & Wealth Education All Rights Reserved

1. Lifetime Gifts Life insurance helps cover any estate tax liability that may occur if gift tax on lifetime taxable gifts has to be included in the decedent’s estate (i.e. three-year inclusion rule of IRC §2035(b)) Life insurance allows one to leverage his/her lifetime taxable gift exemption Most life insurance premiums (payable on an annual or more frequent basis) can be covered by a person’s total annual gift exclusion (i.e. $13,000 per donee in 2011) 6 Integrating Life Insurance with Lifetime Gifts © Keebler Tax & Wealth Education All Rights Reserved

2. Dynasty Trust 7 A type of trust which benefits multiple generations where none of the assets held by the trust are included in either the grantor’s taxable estate or any of the beneficiaries’ taxable estates - However, under the tax law, whenever a transfer is made by the grantor to a “skip person” (e.g. grandchild, great-grandchild, etc.) or a trust for their benefit (e.g. dynasty trust), a second level of tax is imposed on the transfer (in addition to gift tax) - Notwithstanding, a grantor is allowed a lifetime GST exemption on the first $5,000,000 of taxable transfers to “skip persons”  Thus, if the grantor allocates all or a portion of his/her GST exemption to the entire transfer, none of the transfer will be subject to GST tax either in the current year or future years © Keebler Tax & Wealth Education All Rights Reserved

8 2. Dynasty Trust Dynasty Trust Discretionary Distributions to Children for Life Discretionary Distributions to Grandchildren for Life Discretionary Distributions to Great-Grandchildren for Life Future Generations No transfer tax paid. Parent Gift Advantages Creditor protection Divorce protection Estate tax protection Direct decedent protection Spendthrift protection Consolidation of capital Overview © Keebler Tax & Wealth Education All Rights Reserved

2. Dynasty Trust 9 * For sake of simplicity, it is assumed that the marginal estate tax rate at each generation’s death is 35%. Erosion of Wealth at Each Generation Level © Keebler Tax & Wealth Education All Rights Reserved

2. Dynasty Trust Life insurance allows for the grantor to leverage his/her lifetime taxable gift exemption and/or GST exemption Life insurance held within a dynasty trust can be used to purchase the grantor’s estate’s assets or to make a loan to the decedent’s estate to provide liquidity without the insurance proceeds being included in the grantor’s taxable estate 10 Integrating Life Insurance with Dynasty Trusts © Keebler Tax & Wealth Education All Rights Reserved

Installment sales are an effective technique for which to transfer future appreciation out of the seller’s taxable estate To the extent that the rate of return on the assets sold exceeds the IRS’s prescribed rate (i.e. AFR), the “excess” is transferred to the next generation at no additional gift and/or estate tax cost Installment sales to dynasty trusts are even more effective in that the wealth transfer is to multiple generations without the imposition of gift, estate and/or GST tax Installment Sales © Keebler Tax & Wealth Education All Rights Reserved

3. Installment Sales 12 © Keebler & Associates, LLP All Rights Reserved Current Applicable Federal Rates (AFRs)

Benefit: $4,338,365 transferred to beneficiaries tax-free * Assumes a 10-year note at a 3.86% long-term AFR 13 Installment Sale Wealth Transfer Example 3. Installment Sales © Keebler Tax & Wealth Education All Rights Reserved

3. Installment Sales Life insurance provides liquidity to the buyer (e.g. child, dynasty trust) to continue to make installment payments back to the seller (i.e. decedent) Excess cash flow (provided from the property sold via an installment sale) can be used to buy life insurance at a relative nominal cost and without the seller having to gift additional funds to cover the premiums 14 Integrating Life Insurance with Installment Sales © Keebler Tax & Wealth Education All Rights Reserved

15 4. Grantor Retained Annuity Trust (GRAT) A type of trust that benefits the grantor’s future generations (i.e. children) without the imposition of estate or gift tax To the extent that the actual rate of return on the trust’s assets exceeds the IRS’s rate (a.k.a. IRC §7520 rate), the “excess” is transferred to the trust’s beneficiaries free of any estate and/or gift tax. All income earned by the trust is taxed to grantor because the trust is “defective” for income tax purposes, thus allowing for a “tax-free” gift to the trust’s beneficiaries. © Keebler Tax & Wealth Education All Rights Reserved

16 4. Grantor Retained Annuity Trust (GRAT) Children* (Remainder Beneficiaries) Grantor (Lead Beneficiary) Transfer of assets Annuity payments over a fixed term GRAT Payment of gift tax on present value of remainder interest transferred to children (should be at or near $0) IRS At end of term, any residual assets remaining in the trust pass to the children free of any gift tax * Instead of naming the children as outright remainder beneficiaries of the GRAT, a grantor trust could be used (thus producing a greater estate tax benefit) © Keebler Tax & Wealth Education All Rights Reserved

17 4. Grantor Retained Annuity Trust (GRAT) GRAT Wealth Transfer Example Benefit: $8,008,667 transferred to beneficiaries tax-free © Keebler Tax & Wealth Education All Rights Reserved

Life insurance helps cover the additional estate tax liability that could be incurred if the grantor dies within the term of the GRAT The GRAT could use surplus cash flow (i.e. cash inflows less GRAT payments to the grantor) to purchase life insurance as a way to enhance the remainder interest passing to the beneficiaries at the end of the trust term without the grantor having to make gifts to cover the life insurance premiums 18 Integrating Life Insurance with GRATs 4. Grantor Retained Annuity Trust (GRAT) © Keebler Tax & Wealth Education All Rights Reserved

5. CRTs & CLTs A Charitable Remainder Trust (CRT) is a split interest trust consisting of an income interest and a remainder interest. During the term of the trust, the income interest is usually paid out to the donor (or some other non-charitable beneficiary). At the end of the trust term, the remainder (whatever is left in the trust) is paid to the charity or charities that have been designated in the trust document. Types of CRTs Charitable Remainder Annuity Trust (CRAT) The beneficiaries receive a stated percentage of the initial value of the trust assets each year Charitable Remainder Unitrust (CRUT) Income beneficiaries receive a stated percentage of the trust’s assets each year, recalculated annually 19 © Keebler Tax & Wealth Education All Rights Reserved

5. CRTs & CLTs A Charitable Lead Trust (CLT) is a split interest trust consisting of a lead income interest and a remainder interest. During the term of the trust, the income interest is paid out to a named charity. At the end of the trust term, the remainder (whatever is left in the trust) is paid to non-charitable beneficiaries (e.g. children of the donor) that have been designated in the trust document. Types of CLTs Charitable Lead Annuity Trust (CLAT) The charitable beneficiary receives a stated percentage of the initial value of the trust assets each year Charitable Lead Unitrust (CLUT) The charitable beneficiary receives a stated percentage of the trust’s assets each year, recalculated annually 20 © Keebler Tax & Wealth Education All Rights Reserved

5. CRTs & CLTs Life insurance helps offset the amount passing to charity during the term of the trust (in the case of a CLT) or at the end of the trust (in the case of a CRT) CRT distributions allow for a tax-efficient way to fund annual premiums without incurring much income tax and/or gift tax 21 Integrating Life Insurance with CRTs & CLTs © Keebler Tax & Wealth Education All Rights Reserved

6. Split-Dollar Arrangement Split-Dollar Arrangement – A type of premium financing arrangement in which two or more private parties (e.g. employer and employee) choose to split the economic benefits of a life insurance policy whereby one party pays for all or a portion of the annual premium. 22 © Keebler Tax & Wealth Education All Rights Reserved

6. Split-Dollar Arrangement Two Main Types of Split-Dollar Arrangements 23 Economic Benefit –Employer/donor (“owner”) owns the policy and endorses the policy death benefit to the employee/donee (“non-owner”). –“Non-owner” does not have an investment or an ownership interest in the policy. Loan –Employee/donee (“owner”) owns the policy and the employer/donor (“non-owner”) is entitled to recover its cumulative premiums advanced to the employee/donee. –The cumulative premiums advanced are secured by the policy cash value. © Keebler Tax & Wealth Education All Rights Reserved

24 6. Split-Dollar Arrangement Demand loan –A split-dollar loan payable in full on demand –Forgone interest is treated as first being transferred from the lender to the borrower and then from the borrower back to the lender –Interest rate used to imputed income and gift is the “blended” annual AFR for the current tax year Term loan –A split-dollar loan which is due at a specific point in time –Forgone interest is treated as first being transferred from the lender to the borrower as taxable income and then from the borrower back to the lender as original issue discount (OID) –OID to lender is recognized over the term of the loan whereas the borrower must recognize all the income in the year the loan originated –Interest rate used to calculate the present value of the payment due to the lender is the AFR at the time the loan originated Two Main Types of Split-Dollar Loans © Keebler Tax & Wealth Education All Rights Reserved

With a $5M estate tax exemption until the end of 2012, many potential clients are putting less focus on estate taxes Instead, asset protection is getting more attention (although it always has been just as important) 7. Domestic Asset Protection Trust (DAPT) © Keebler Tax & Wealth Education All Rights Reserved

A DAPT is an irrevocable trust that is set up under the laws of one of the states that allows a person to be a discretionary beneficiary of his own trust without creditors being able to access it –Pick a state with a short statute of limitations –Pick a state where no statutory exception creditors can access it 7. Domestic Asset Protection Trust (DAPT) © Keebler Tax & Wealth Education All Rights Reserved

7. Domestic Asset Protection Trust (DAPT) Another asset protection strategy combines a DAPT with two LLCs to create a nearly insurmountable wall –Spendthrift trust protection –Charging order protection This will almost certainly dissuade a potential creditor © Keebler Tax & Wealth Education All Rights Reserved

28 8. Spousal Access Trust A Spousal Access Trust is a type of domestic asset protection trust (DAPT) in which each spouse creates a trust for the benefit of the other spouse (and his/her heirs). The purpose of this trust is to provide a source of cash flow to the spouse-beneficiary while keeping the assets secure from creditors and other legal claims. If structured and executed properly, neither trust will be included in either spouse’s taxable estate © Keebler Tax & Wealth Education All Rights Reserved

Discretionary distributions of principal during lifetime Mandatory distributions of income (and discretionary distributions of principal) during wife’s lifetime 29 Trust #1 Trust #2 Trust #3 Trust #4 Husband Wife Children Husband Children Grandchildren Children 8. Spousal Access Trust Distribution of residual trust principal at wife’s death Discretionary distributions of principal during wife’s lifetime Discretionary distributions of principal during lifetime Discretionary distributions of income and principal during husband’s lifetime Transfer of cash and other assets (will utilize annual gift exclusion and/or lifetime taxable gift exemption) Distribution of residual trust income and principal at husband’s death Discretionary distributions of income and principal during husband’s lifetime © Keebler Tax & Wealth Education All Rights Reserved

30 8. Spousal Access Trust Integrating Life Insurance with Spousal Access Trusts Life insurance allows for the grantor to leverage his/her lifetime taxable gift exemption and/or GST exemption Life insurance held within the trust can be used to purchase the grantor’s estate’s assets or to make a loan to the decedent’s estate to provide liquidity without the insurance proceeds being included in the grantor’s taxable estate © Keebler Tax & Wealth Education All Rights Reserved

9. Stretch-IRA Stretch-IRA Objective: Prolong IRA payments over longest possible period of time, thus increasing wealth to future generations An IRA is treated as “inherited” if the individual for whose benefit the IRA is maintained acquired the IRA on account of the death of the original owner. Under the tax law the IRA assets can be distributed based upon the life expectancy of the beneficiary. 31 © Keebler Tax & Wealth Education All Rights Reserved

9. Stretch-IRA Life insurance allows for the IRA owner to move taxable funds into a tax-free environment Life insurance allows for a greater “stretch-out” period for the IRA owner’s beneficiaries (in that they do not need to withdraw IRA funds to cover the deceased IRA owner’s taxes, expenses and other liabilities) 32 Integrating Life Insurance with Stretch-IRA © Keebler Tax & Wealth Education All Rights Reserved

9. Stretch-IRA 33 Integrating Life Insurance with Stretch-IRA * NOTE: Gifts to the ILIT will use the grantor’s annual gift exclusion and/or lifetime gift exemption. Life Insurance Company Payment of death benefit proceeds at death of insured Grantor (Insured) Trust (Beneficiary) Annual gifts to cover life insurance premiums* Payment of premiums Discretionary distributions of income and principal during the lifetime of the trust’s beneficiaries Assets outside of the taxable estates of beneficiaries Trust Beneficiaries (e.g. children) IRA Periodic withdrawals © Keebler Tax & Wealth Education All Rights Reserved

9. Stretch-IRA 34 Integrating Life Insurance with Stretch-IRA © Keebler Tax & Wealth Education All Rights Reserved

10. Roth IRA Conversions A Roth IRA conversion is an excellent way to transfer income and growth from a taxable environment to a tax-free environment If carefully analyzed and executed, the amount of additional wealth transferred to future generations can be significant 35 © Keebler Tax & Wealth Education All Rights Reserved

10. Roth IRA Conversions The most important factors to a Roth IRA conversion which need to be analyzed are: –Tax rate differential (i.e. tax rate in the conversion year vs. tax rate in future years when IRA withdrawals take place) –Ability to use “outside funds” (i.e. non-IRA funds) to pay the tax on the conversion –Time horizon / need of IRA funds to cover annual living expenses 36 © Keebler Tax & Wealth Education All Rights Reserved

10. Roth IRA Conversions Recharacterizations enhance the benefits of Roth IRA conversions in that the IRA owner has the benefit of hindsight Accordingly, one must not only look at the income tax liability on the original conversion, but also post-conversion returns to see if the original conversion makes sense 37 © Keebler Tax & Wealth Education All Rights Reserved

10. Roth IRA Conversions 38 Roth IRA Conversion/Recharacterization Timeline Conversion PeriodRecharacterization Period 1/1/2011 – First day conversion can take place /31/2011 – Last day conversion can take place 4/15/2012 – Normal filing date for 2011 tax return 10/15/2012 – Latest filing date for 2011 tax return / last day to recharacterize 2011 Roth IRA conversion 12/31/ © Keebler Tax & Wealth Education All Rights Reserved

10. Roth IRA Conversions 39 Impact of Post-Conversion Returns Example © Keebler Tax & Wealth Education All Rights Reserved

10. Roth IRA Conversions Life insurance can be used to help cover the income tax liability on post-mortem conversions by beneficiaries Life insurance be used to preserve Roth IRA funds from having to be used to cover a decedent’s estate/income taxes and other estate administrative expenses/debts (see Stretch-IRA discussion) 40 Integrating Life Insurance with Roth IRA Conversions © Keebler Tax & Wealth Education All Rights Reserved

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Circular 230 Disclosure Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors. 42 © Keebler Tax & Wealth Education All Rights Reserved