1. © 2015 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. This Barnes & Thornburg LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and any specific legal questions you may have, or address any questions concerning the foregoing to a Barnes & Thornburg attorney. Why Does Estate Planning Matter? Presented by: Bradley J. Frank Barnes & Thornburg LLP (612) 367-8720 bradley.frank@btlaw.com

2. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. What is Estate Planning? Accumulation Wealth Preservation Distribution of Assets in a way that is –Tax Efficient –Cost Effective –In line with your goals

3. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Everyone has an estate plan Wills Trusts The law of the state of residency Asset Titling Is your estate plan minimizing taxes?

4. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. The Problem: Estate and Gift Taxes The federal government taxes transfers of property during life (gift taxes) and upon death (estate taxes). The state of Minnesota taxes transfers of property upon death. The tax rates are as follows: For 2015USMN Gift Tax Rate40%N/A Estate Tax Rate 40% (over $5,430,000) 9-16% (over $1,400,000)

5. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Federal Exemptions: The federal government allows each person to transfer some property without paying gift or estate taxes: 2015 Exemptions Per Person: Amount: Transfers to Spouses (Marital Deduction): Unlimited Annual Gifts of ≤ $14,000 Per Recipient Unlimited Annual Gifts > $14,000$5,430,000 (infl. adjusted) Transfers Upon Death $5,430,000 (infl. adjusted) (minus lifetime taxable gifts)

6. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Recent History of the Federal Exemption: 2006$2,000,000 2009$3,500,000 2010Unlimited 2011-2012$5,000,000 2015$5,430,000 (infl. adjusted)

7. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Minnesota Exemptions: Minnesota allows each person to transfer some property without paying gift or estate taxes: 2015 Exemptions Per Person: Amount: Transfers to Spouses (Marital Deduction): Unlimited GiftsUnlimited (3yr lookback) Transfers Upon Death$1,400,000 (increasing)

8. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Do I pay tax on everything? What Asset Transfers Are Taxable? Assets held in your name when transferred by gift or as part of your estate are taxed, including, among other items: –Homes –Businesses –Retirement Accounts –Investment Accounts –Property Held in Joint Tenancy –Insurance Proceeds Paid –Cars, Boats and Other Vehicles –Personal Property Including Jewelry, Antiques, and Art –Assets Inherited or Received by Gift Outside of a Trust

9. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Impact of Minnesota Estate Tax on Married Clients with a Combined Estate of $2,800,000: A typical married person’s goals for an estate plan are to provide for his or her spouse during his or her life and to provide for his or her children after the death of the surviving spouse. Assuming that all children were the children of both spouses, this is what a plan would look like if you did not have an estate plan or one that did not consider estate taxes: Husband’s Estate: $1,400,000 Wife’s Estate: $1,400,000 + $1,400,000 inherited from Husband = $2,800,000 Husband’s Death: No Tax Is Due Since He Transfers Property To His Spouse (Unlimited Marital Deduction).

10. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Impact of Minnesota Estate Tax on Married Clients with a Combined Estate of $2,800,000: On the death of the surviving spouse, the children would have to pay an estate tax to the state of Minnesota equal to $140,000: Wife’s Estate: $2,800,000 Minnesota Estate Tax Calculation: $2,800,000 Gross Estate -$1,400,000 Exemption $1,400,000 Taxable Estate Tax Due: $140,000 Children Receive: $2,660,000

11. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. How to Save Your Children $140,000: If the Husband and Wife in our example had an estate plan that considered estate taxes, they could have accomplished the same goals and saved their children $140,000. Here is what their estate plan should have looked like: Husband’s Estate: $1,400,000 Husband’s Death: No tax is due since husband can transfer $1,400,000 to nonspouse without paying Minnesota estate tax. Family/Credit Shelter Trust: Trustees pay income and principal to spouse (and children) as needed. Upon surviving spouse’s death, assets pass to children outside of surviving spouse’s estate.

12. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. The Result of a Plan that Considers Estate Taxes:The Result of a Plan that Considers Estate Taxes: On Wife’s subsequent death, only her estate will be subject to estate taxes since the family trust is not in “her name.” Since it is $1,400,000, both the family trust and Wife’s estate will pass estate- tax-free to children. Thus, the children will receive all $2,800,000 of the husband and wife’s combined estate and save $140,000 in estate taxes.On Wife’s subsequent death, only her estate will be subject to estate taxes since the family trust is not in “her name.” Since it is $1,400,000, both the family trust and Wife’s estate will pass estate- tax-free to children. Thus, the children will receive all $2,800,000 of the husband and wife’s combined estate and save $140,000 in estate taxes. Wife’s Estate: $1,400,000 Minnesota Estate Tax Calculation: $1,400,000 Gross Estate -$1,400,000 Exemption $ 0 Taxable Estate Tax Due: $0 Family Trust:Family Trust: $1,400,000$1,400,000 Upon surviving spouse’s death, assets pass to children outside of surviving spouse’s estate, free of estate taxesUpon surviving spouse’s death, assets pass to children outside of surviving spouse’s estate, free of estate taxes Children Receive: $2,800,000

13. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. How you Title Assets Matters Each person can transfer $1,400,000 free of Minnesota estate taxes, but you can only transfer assets that are held in your name. If one spouse owns too many assets and the other spouse owns too few, you can incur unnecessary estate taxes. Consider the following example: Husband’s Estate $2,000,000 Husband Dies Second: $60,000 Estate Tax Children Receive: $2,740,000 Wife’s Estate $800,000 Wife Dies First: No Estate Tax Family Trust $800,000

14. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Keep Estate Balanced In the previous example, the children paid an additional $60,000 in Minnesota estate taxes because the wife died first and could not take full advantage of her ability to transfer assets tax free since she had less than $1,400,000 in her name. If the husband and wife kept roughly the same value of assets in each spouse’s name, the result would have been different: Husband’s Estate $1,400,000 Husband Dies Second: No Estate Tax Children Receive: $2,800,000 Wife’s Estate $1,400,000 Wife Dies First: No Estate Tax Family Trust $1,400,000

15. © 2013 Barnes & Thornburg LLP. All Rights Reserved. This page may be freely copied and distributed if kept intact and the copyright notice appears. Health Care Directive Power of Attorney Personal Property Memorandum Naming of Guardian Beneficiary Designations Other Documents