Estate Planning - The Agribusiness of Farm & Business

Transcription

1 Northeast Agribusiness Seminar New York Bankers Association Inside Farm Family Business Transitions The Bankers Role 2015 Jeffrey M. Fetter, Attorney at Law Scolaro, Fetter, Grizanti, McGough & King, P.C. Syracuse, New York 1

2 Representing the Ag Client Benefits Challenges 2

3 2015 How to maintain edge in times of a difficult agriculture economy Continued Growth? Reductions in herd or land base? Status Quo and Hope for the best? Keep moving forward 3

4 Importance of Succession Planning Preserving and perpetuating the family business and maximizing business owners equity Minimizing income and estate taxes Proper management of estate assets Provide financial support for family and next generation Dealing with business and non business heirs Asset protection to minimize personal liability exposure Retirement planning Long term care planning Unplanned events divorce/ long term care Maintain family and family business harmony 4

5 What is Succession Planning Estate Planning Asset Protection Planning Business and Financial Planning Management Succession Knowledge Transfer Long Term Care Planning Planning for the expected and the unexpected in a structured manner 5

6 Succession Planning Its more than having a will or a buy sell agreement 6

7 How We Plan Estate Planning wills, trusts, gifting Long Term Care Planning trusts, gifts, long term care insurance Business Management and Succession / Transition Planning buy/sell and other agreements, life insurance, retirement planning, real estate planning, management succession, knowledge transfer, establishment of relationships Asset Protection Planning LLCs, corporations, partnerships, trusts, etc. Matrimonial Planning prenuptial agreements 7

8 It all comes together as one plan Estate, Retirement & Financial Planning LTC Planning Asset Protection Planning Buy Sell Agreement Management Succession 8

9 The Challenges Senior Generation Objectives Retirement income and security for surviving spouse Perpetuation of the family business Equitable treatment of business and nonbusiness heirs Minimizing estate taxes Minimizing income taxes 9

10 Senior Generation Objectives Protection from long term care expenses Reduction or elimination of management responsibilities Reduction or elimination of financial responsibilities Protecting assets for children and grandchildren 10

11 Junior Generation Objectives Ownership, ownership, ownership! Credibility with community members, lenders and vendors Assumption of management responsibilities Assure needs of Senior Generation do not impair business operations Avoiding nonbusiness heirs in management/ownership 11

12 Junior Generation Objectives Avoid imposition of estate taxes Avoid long term care costs Favorable tax structure on succession plan 12

13 Farm Estate Planning Tools Wills Trusts Purposes Minimize estate taxes Asset protection Equalization of estates among business and non business heirs Preserving business assets for successive generations Types Revocable Irrevocable Living / inter vivos Death / testamentary Insurance Living wills Durable Power of Attorney Health care proxies Life insurance 13

14 The Advisor Team Who are they and what is their role? The accountant The attorney The financial planner/insurance advisor The banker 14

15 Farm Business Succession Strategies Creation of entity or entities for operations and real estate Buy / sell agreement Estate and income tax implications Utilization of trusts for estate tax savings, insuring continued operation of business by family members and creditor protection of families Need for insurance for estate tax purposes and for equalization of estate among business and non business heirs 15

16 The Advisor Team Its All About Relationships The Team Approach Working together for the client How and When to Approach Clients About Their Plan? Each time you see them 16

17 Which Advisor Has the Most at Stake if a Succession Plan is not Successful? The Accountant? The Attorney? The Financial Advisor / Insurance Advisor? The Banker? Hint: Which one of the advisors ends up owning a farm if the plan doesn t work? 17

18 The Big Question Do you have a succession plan and how is it structured? The answer? Sure All set Dad won t talk about it 18

19 Succession Plan Audit 2015 The Estate Plan The Client Should Review, Create or Update wills, trusts, health care planning documents Are distributions to spouse or children outright? Consider trust structure. Business Heirs/Nonbusiness heirs Review and update retirement plan and life insurance policy beneficiary designations: non probate property 19

20 Succession Plan Audit 2015 Health Care Documents Review your health care documents Ensure HIPAA language is in all health care documents Health care powers of attorney for anyone over 18 Living Wills Durable financial/legal powers of attorney 20

21 Succession Plan Audit 2015 The Business Plan Review and update operating agreements, partnership agreements, shareholder agreements Are management issues properly addressed? Does the agreement contain necessary tax related provisions? Are minutes and other governance documents up to date? Have entities been created appropriately to limit liability exposure? Are written leases in place between entities? Are employment agreements up to date? 21

22 Succession Plan Audit 2015 The Business Plan Review of buy/sell agreements Are the Parties Correctly Set Forth? Are multiple generations properly reflected? Are triggering events correct? Death, disability, voluntary or involuntary termination? One size does not fit all. Is the value for purchase properly stated? Are payment provisions properly structured? Is the agreement properly funded? How? Is the agreement up to date? 22

23 The Banker s Concern Security Position Strong Management Accurate Financial Reporting You don t want to milk cows 23

24 Succession Planning Opportunities in 2015 Income Tax Planning vs. Estate Tax Planning Step Up in Basis is still with us Utilization of profits interests family and key employees Income Only Trusts Life Insurance Partnerships Deferred Compensation/Retirement Planning for Key employees and family Dynasty Trusts 24

25 Trust Planning Opportunities in 2015 Dynasty Trust Overview Grantor Advantages Business Succession Family / Non Family Creditor protection Divorce protection Estate tax protection Direct decedent protection Spendthrift protection No buyouts upon termination Gift* No transfer tax paid. No transfer tax paid. No transfer tax paid. No transfer tax paid. Dynasty Trust Discretionary Distributions to Children for Life Discretionary Distributions to Grandchildren for Life Discretionary Distributions to Great-Grandchildren for Life Future Generations 25

26 Succession Strategies 2015 Why use trusts? Lifetime (Inter Vivos) Trusts Testamentary Trusts Protection of estate within family Creditor protection Estate tax protection Legacy for children and grandchildren 26

27 Why Use a Gifting Plan? Gift tax exemptions are $5,430,000 each Little liquidity for paying estate taxes Next generation wants to continue business Business/Real Estate values continue to increase 27

28 Portability of Estate Tax Exemption A deceased spouse s unused exemption is available to a surviving spouse Caution: Portability does not replace the need for estate planning New York estate tax issues Income tax planning Asset protection planning Does not apply to Generation Skipping Tax 28

29 Federal Estate and Gifts Tax Exemptions $600,000 $675,000 $5,000,000 $5,430,000 Historically, high tax exemptions allow family business owners to think about transition to next generation and beyond. 29

30 New York State Tax Exemption Increased from $115,000 to $300,000 $675,000 $1,000,000 $3,125,000 New York State estate exemption will be equal to federal exemption in

31 New York Limitations No Portability Additional Estate Tax for Estates between 100% and 105% of the BEA Gifts made after 4/1/14 and within 3 years of death are included in taxable estate 31

32 Planning Perspectives Planning for key business employees Determine succession planning strategies that may be utilized to transfer the business to the next generation or third parties to insure the future success of the business Strategic alliances business working together Partnering for growth, income and business ownership transfer 32

33 Strategy For Successful Business Transfer A team effort family, financial, business management, tax and legal expertise Be flexible plans must be tailored to individual and unique business circumstances but provide flexibility for change Revisit goals, monitor and maintain the plan 33

34 The Successful Operations Team The Farm Present Owners/Management Team Next Generation Key Employees The Advisors 34