Emerson Process Management 8100 West Florissant Avenue St. Louis, Missouri ESTATE PLANNING PRESENTATION May 22, Kimberly B. McDermott Lewis, Rice & Fingersh, L.C. (314)

Overview t Introduction t Lifetime Planning t Wills t Revocable (Living) Trusts t Transfer Tax Planning LEWIS, RICE & FINGERSH, L.C.

Introduction t Three primary goals of estate planning: uDirect how assets will be distributed at death. uReduce or eliminate transfer taxes and probate costs. u“Piece of Mind” – Review every 3 to 5 years and major life events (three “phases” of estate planning). t Transfer Taxes: uGift Taxes uEstate Taxes uGeneration-Skipping Transfer Taxes LEWIS, RICE & FINGERSH, L.C.

Introduction s Assets pass to beneficiaries at death by various methods:  Joint Property -- passes to surviving joint tenant  Contract (IRA, pension plans, life insurance, annuities, etc.)  Custodianship or nonprobate transfer (pay on death [POD], transfer of death [TOD] registration and beneficiary deed)  Intestacy (without a Will, probate administration and bond required)  Will (probate administration required)  Trust Agreement (no need to probate, no court supervision) LEWIS, RICE & FINGERSH, L.C.

u It is important that all your assets be integrated into your estate plan. Consider beneficiary designations on life insurance, IRAs and other death benefits. u Prepare and consider the following:  Summarize all your assets (life insurance, stocks, bonds, CDs, bank accounts, real estate, etc.). In whose name or names are the assets held?  Upon your death, who do you want to appoint as the Executor and Trustee? What about successor Executors and Trustees?  Do you wish to leave assets outright or in trust?  If you have minor children, who do you want to name as guardian? Introduction LEWIS, RICE & FINGERSH, L.C.

Lifetime Planning t Durable Power of Attorney. t Health Care Authorization, Declaration (or Living Will) and Power of Attorney. LEWIS, RICE & FINGERSH, L.C.

Lifetime Planning t Durable Power of Attorney: uGrants to another (“attorney-in-fact”) power to execute and carry out certain financial activities (sign checks, collect income, make withdrawals, sell or purchase assets, borrow money, sign tax returns, etc.). uDurable means that it survives the incapacity of the principal. uReview named attorney-in-fact and successors. LEWIS, RICE & FINGERSH, L.C.

Lifetime Planning t Health Care Authorization, Declaration and Power of Attorney: u Decision to forego life-sustaining treatment if:  Principal shall sustain substantial and irreversible loss of mental capacity, and  Principal is unable to eat and drink without medical assistance and is highly unlikely to regain that ability or principal has an incurable or irreversible condition which is likely to cause death within a relatively short time. uGrants to another (“attorney-in-fact”) power to make health and personal care decisions. uHealth Insurance Portability and Accountability Act (“HIPAA”) uReview named attorney-in-fact and successors. t Final Arrangements. LEWIS, RICE & FINGERSH, L.C.

Wills t You should write your own Will and not have Missouri write it for you. t Missouri Intestacy Statute: Assume Husband dies, survived by Wife and: parents and no children: W gets entire estate children (of H and W): W gets $20,000 and 1/2 of balance, children get other 1/2 children (of H’s previous marriage): W gets 1/2 and children get 1/2 LEWIS, RICE & FINGERSH, L.C.

Wills t Your Will allows you to name your: Executor: Person or bank who collects your assets upon your death, pays claims and taxes and distributes remaining assets to your beneficiaries. Guardian: Person who is authorized to make decisions concerning the personal welfare (such as consent to medical procedures) of your children under age 18. Trustee: Person or bank authorized to make investment decisions concerning your assets and distribute assets to beneficiaries in accordance with the trust provisions of your Will. Review successor Executors, Guardians and Trustees. LEWIS, RICE & FINGERSH, L.C.

Revocable (Living) Trusts t Trust agreement that holds assets during lifetime and disposes of them at death. t Distributions: uDuring Grantor’s lifetime. uAfter Grantor’s death.  Payment of taxes and expenses.  Disposition of tangible personal property (“List”).  Trusts for spouses, children or others. LEWIS, RICE & FINGERSH, L.C.

u Use of “sprinkling” trusts upon death of surviving spouse until all children have attained independence. Parent substitute. u Establish lifetime trusts to hold the shares of your children. uAdvantages of lifetime trusts: uCreditor Protection uControl until specified age uFuture transfer tax planning u Review to update due to repeal of rule against perpetuities and uniform trust code, as well as qualified plans, subchapter S corporation, etc. Revocable (Living) Trusts LEWIS, RICE & FINGERSH, L.C.

Transfer Tax Planning s Gift Tax Exclusions s Annual Exclusion ($12,000 per individual per donee) s Tuition s Medical Expenses LEWIS, RICE & FINGERSH, L.C. s Unlimited Marital Deduction. There is no Federal Tax on transfers between a Husband and Wife during lifetime or at death. Husband and Wife must be legally married and the recipient must be a U.S. citizen. Prior to 1983, there was a tax on transfers between Husband and Wife. If your Will or Trust was written before 1982, it should be updated. Husband $ Wife No Taxes $

Transfer Tax Planning s Unified Transfer Tax Credit. The estate tax exemption is scheduled to increase to $3,500,000 by the year The gift tax exemption remains at $1,000,000. LEWIS, RICE & FINGERSH, L.C.

Transfer Tax Planning s A Credit Shelter Trust (also known as Residuary Trust, B Trust or a Unified Credit Trust) is usually established and funded at one’s death, but can be created during lifetime. The trust can be held for the benefit of the surviving spouse and, on his or her death, pass on to children, grandchildren or others free from any estate tax. Husband $ $ Wife No Taxes $ Left to the Children or to a Credit Shelter Trust First $2,000,000 No Tax First $2,000,000 No Tax LEWIS, RICE & FINGERSH, L.C.

Transfer Tax Planning s However, all too often only one $2,000,000 exemption is used. This can be a $900,000 mistake if the family has $4,000,000 in total assets. H $2,000,000 W $2,000,000 s How could you miss this exemption? By leaving all your assets outright to your spouse. s Assume Husband and Wife each have $2,000,000 LEWIS, RICE & FINGERSH, L.C.

Transfer Tax Planning s Assume Husband dies first leaving all his assets to Wife by Will, joint ownership, beneficiary designation or intestacy. There is no estate tax due to the unlimited marital deduction. H Dies First W $4,000,000 $2,000,000 s Assume Wife dies second and no appreciation of assets. The estate taxes due 9 months after Wife’s death amount to $900,000. Wife’s estate is in the 45% marginal estate tax bracket. H Dies First W $4,000,000 $2,000,000 ($900,000) Estate Tax ($3,100,000) Net to Children LEWIS, RICE & FINGERSH, L.C.

Transfer Tax Planning H Dies First W $2,000,000 What can be done: s Husband could leave $2,000,000 to a Credit Shelter Trust upon his death instead of leaving $2,000,000 outright to Wife. s Credit Shelter Trust could distribute income and principal in Trustees’ discretion to the spouse and descendants. Wife may be sole Trustee or co-Trustee of Credit Shelter Trust. Credit Shelter $2,000,000 Income and principal to W and descendants LEWIS, RICE & FINGERSH, L.C.

Transfer Tax Planning H Dies First W $2,000,000 s In this fashion, both $2,000,000 exemptions of Husband and Wife would be used. The estate tax savings is $900,000 and, assuming no appreciation of the assets, $4,000,000 passes to children free from any estate tax. Credit Shelter $2,000,000 $4,000,000 to Children LEWIS, RICE & FINGERSH, L.C. s Assets must be correctly titled and documents (Wills or Revocable Trusts) must be drafted to establish Credit Shelter Trust. Each spouse should have $2,000,000 in his or her separate name (or Revocable Trust).

Transfer Tax Planning t Insurance Trust t Charitable Trusts t Irrevocable Gift Trust (Dynasty Trust) t Qualified Personal Residence Trust t Family Limited Partnership LEWIS, RICE & FINGERSH, L.C.