Elementary and Effective: 30 Great Ideas in 60 Minutes€¦ · Form 17—Qualified Retirement Plan...

Online CLE

Elementary and Effective: 30 Great Ideas in 60 Minutes

1 General CLE credit

From the Oregon State Bar CLE seminar Advanced Estate Planning (2015), presented on June 12, 2015S

© 2015 Stephen Lane. All rights reserved.

Chapter 5

From Elementary and Effective to Hot and Sophisticated: 30 Great Ideas in 60 Minutes

Stephen Lane

Gleaves Swearingen LLPEugene, Oregon

Contents

Disclaimer 5–1

Elementary and Effective Ideas 5–1

Tricks and Traps with Tax-Favored Accounts 5–4

Planning Turned Upside Down; Income Tax Basis and Transfer Taxes 5–6

Trusts for All Seasons and Reasons 5–8

Ideas from All Over 5–12

Special Lessons from the Past 5–14

Form 2—Residential Trust Agreement 5–15

Form 4—Amendment to Revocable Trust 5–17

Form 5—Client Status Language 5–19

Exhibit 14—Roth Conversion Checklist 5–21

Form 17—Qualified Retirement Plan and IRA Benefits Language 5–23

Form 25—Amendment to LLC Operating Agreement 5–25

Exhibit 27—Spousal Exemption Cake Trust or Spousal Annual Exclusion—Created by Husband and Wife Avoiding the Reciprocal Trust Doctrine 5–27

Form 28—Stock Gift and Sale Agreement 5–29

Exhibit 35—Form OR706-A, Oregon Additional Estate Transfer Tax Return 5–33

Exhibit 37A—Estate Planning Associate Training Curriculum and Projects Checklist 5–39

Exhibit 37B—Estate Planning and Administration Legal Assistant Checklist 5–43

Exhibit 38—To Expand on the Admonition of Earl Long (Handout from Conclusion of Presentation) 5–47

Chapter 5—From Elementary and Effective to Hot and Sophisticated: 30 Great Ideas in 60 Minutes

Advanced Estate Planning 5–ii


Advanced Estate Planning 5–1

30 GREAT IDEAS IN 60 MINUTES

DISCLAIMER

The seminar materials and presentation provided here are intended to stimulate thought and discussion, and to provide those attending with useful ideas in the areas of estate planning and administration. The materials and the comments made by the presenter do not constitute and should not be treated as legal advice regarding the use of any particular estate planning technique, device or strategy. These materials are intended to provide only a cursory overview of the complex concepts addressed. Each person utilizing these materials should verify the efficacy of each concept before applying them to a particular fact pattern and should determine independently the tax and other consequences of using any particular device, technique or strategy before considering recommending the same to a client or implementing the same on a client’s or his or her own behalf. If any materials make use of copyrighted or proprietary writings or concepts the use was unintentional or intended as “fair use” in furtherance of this presentation’s purpose.

ELEMENTARY AND EFFECTIVE IDEAS

1. POD AND TOD TO AVOID PROBATE; TOD FOR NON-MARKETABLE ASSETS. We are all familiar with the technique of POD or TOD designations for bank accounts and brokerage accounts. POD and TOD designations, coupled with other beneficiary designations, can often accommodate most if not all of the client’s testamentary intentions. One thing to remember is that heirs and beneficiaries will consider themselves entitled to the proceeds (as they are) but that does not negate their responsibility to report and pay estate taxes if necessary. Often overlooked is the ability to make TOD designations with respect to closely held business interests such as law firm partnership or shareholder interests, family investment LLC interests, and other private equity holdings. It may be necessary to modify governing instruments to accommodate a TOD designation, but it can often greatly simply the transfer of business interests.

2. ONE PAGE REVOCABLE TRUST FOR THE HOME. If you have made needed TOD, POD and beneficiary designations successfully, there still may be a probate asset that is not addressed by a beneficiary designation. Often this is the family home. While we now have a “transfer on death deed” (ORS 93.948 to 93.985), not all practitioners are comfortable with that arrangement. A fairly simply way to address the remaining real estate interest is a one page (almost) trust just for the principal residence. (See Form 2).



3. DON’T PROVIDE ANALYSIS OR OPINION ABOUT LIFE INSURANCE. Many of the ILITs formulated twenty to thirty years ago have underperformed the non-guaranteed projections which were the basis of the planning if the first place. Life insurance by its very nature is fraught with complexity. If you are involved in an estate plan implementing life insurance planning, be sure to disclaim any knowledge or responsibility about the economic results of the product. That is up to the client and the insurance advisor.

4. MAKE CHILD CO-TRUSTEE AND NOT JUST SUCCESSOR TRUSTEE. All of our revocable trusts provide for a successor trustee if the original grantor ceases to serve because of death or incapacity. Death is easy to establish. Incapacity is not easy to establish. In order to avoid the complexity of demonstrating incapacity make the trusted successor trustee a current co-trustee with full authority to act solely as the trustee under the trust agreement. (See Form 4).

5. INCLUDE AGENT AUTHORITY TO ACT AS CLIENT WITH PRINCIPAL’S LAWYER IN DURABLE POWER OF ATTORNEY. Our clients can act through agents. The transition of the elderly from competent to incompetent can occur at an excruciatingly slow pace and you, the trusted attorney, may not know when the client is actually capable of continuing to maintain the attorney-client relationship. Some day you will receive the phone call from your client’s child saying “Mom is going to a nursing home because she cannot manage for herself” and asking you “Are all the necessary legal arrangements in place?” Your first reaction is that you cannot discuss attorney-client matters with a third party without authorization from the client. It also may be uncertain whether the client can give you that consent currently. Include the authority of the agent to act in the attorney-client relationship capacity in the Durable Power of Attorney. (See Form 5).

6. DON’T LEAVE BEQUEST TO CHARITY IF CHILDREN ARE TRUSTED TO MAKE THE GIFT. Many clients want to leave a modest but meaningful amount to their favorite charities when they die. That is always very nice, but means the family foregoes the income tax deduction. If the client is comfortable with the arrangement, and there are no estate taxes to be saved, consider a handshake deal where the children will turn around and make the charitable contribution after the parents’ deaths and derive the benefit of the income tax deduction.



7. BESSEMER TRUST COMPANY WEB SITE. Bessemer Trust Company, headquartered in New York, provides the best free current insights into sophisticated estate planning topics. This is because they hired Steve Akers who publishes on the Bessemer website his ongoing commentary from such events as the ACTEC Annual Meeting, the Heckerling Institute, and analyzes significant current estate tax cases. Steve’s commentary and insights are invaluable to practitioners. All you need to do is sign up, for free, for access to the site (bessemertrust.com).

8. AVOID MULTIPLE FIDUCIARIES IF POSSIBLE. Parents often wish to name all or many of their offspring as successor fiduciaries so nobody feels left out. If there are frictions already present in the sibling relationships, you are often better not to use one of the offspring as successor fiduciary anyway. If the children in fact get along, and there is one with clearly superior capabilities, or a better geographic location, naming a single fiduciary and seeing that they keep everyone informed is much easier than dealing with multiple personal representatives or trustees.

9. DISCUSS LACK OF PENALTY FOR FAILURE TO FILE OREGON 706 IF NO TAX DUE. If you have an Oregon only estate which will not owe any Oregon estate tax, but exceeds the $1,000,000 filing threshold, do you have to file the return? There is no penalty for failure to file the return if no tax is due. You should explain to the client that they will not get the benefit of a statute of limitations expiring on the Oregon estate, but you might also mention the number of DOR agents who manage the Oregon estate tax.

10. AVOID NON-QUALIFIED ANNUITIES; CASH OUT WHILE ALIVE IF ESTATE IS TAXABLE. Nonqualified commercial annuities, often sold to elderly persons looking for a “enhanced return,” carry nothing but income tax headaches, particularly for surviving beneficiaries. The unrealized income is IRD taxed at ordinary income tax rates to the recipients with no benefit from the IRC §1014 basis step up. I have never met beneficiaries who were happy that their deceased parent invested in nonqualified annuities which they inherited.

11. MOVE THE ESTATE OUT OF OREGON BY PURCHASING TANGIBLE PERSONAL PROPERTY IN ANOTHER STATE. The Oregon estate tax applies to the intangible personal property of Oregon residents as well as the real and personal property located in Oregon of residents and nonresidents alike. Note that tangible personal property is subject to the estate tax based on its situs.



Consider a wealthy Oregon resident purchasing tangible personal property located in California or Nevada which the Oregon resident owns at death. Items such as artwork, collectible automobiles, and possibly bullion, could be effective receptacles for an Oregon resident’s wealth in a location beyond the application of the Oregon estate tax.

TRICKS AND TRAPS WITH TAX FAVORED ACCOUNTS

12. DON’T DO ANYTHING UNTIL YOU READ LIFE AND DEATH PLANNING FOR RETIREMENT BENEFITS BY NATALIE B. CHOATE. Do not enter the minefield of estate planning with qualified plan and IRA assets without consulting Life and Death Planning for Retirement Benefits, Natalie B. Choate, 7th Edition, 2011. Go to ataxplan.com and order for $89.95. The February 17, 2015 Post-Publication Updates can be downloaded as a pdf file for free. If you want to ignore Idea 18 below, read Making Retirement Benefits Payable To Trusts, Natalie B. Choate, also available at ataxplan.com for $39.95 and also presented at a recent CLE meeting in Oregon (Eugene, November 14, 2014). Another good resource is How to Draft Trusts to Own Retirement Benefits, Keith A. Herman, ACTEC Law Journal, Winter 2013, Vol. 39, pg. 207.

13. ROTH IRA FOR CHILDREN WITH EARNED INCOME. Wealthy parents should be sure that their children with earned income, if their AGI meets the limitation test, invest annually in a Roth IRA. That contribution should be made at the beginning of the year and not later. Parents should make cash gifts if needed to make this planning palatable to the children.

14. DEATHBED ROTH CONVERSION. The Roth IRA is a powerful tool for income tax minimization and wealth transmission. As long as we have the “stretch out” rules available to us, a child inheriting a Roth account has an opportunity to realize substantial nontaxable income over the recipient’s life expectancy period. In addition, wringing the income tax out of an otherwise taxable IRA reduces both the federal and state death tax. Yes, there is an income tax deduction associated with paying estate tax on items of IRD (IRC §691), but that is a generally cumbersome process to implement, and there is no corresponding provision with respect to Oregon estate tax paid with respect to the IRD items. (See Checklist Form 14).

15. CHARITABLE GIFTS WITH TAXABLE IRA ACCOUNTS. Testamentary charitable gifts are best made with taxable IRA or retirement plan accounts. It simply means that you are using the cheapest dollars, in terms of the



inheritance of family members, in funding the charitable gift. (See Nathalie Choates Treatise described above).

16. CONTROLLING THE BENEFICIARY WITH A TRUSTEED IRA. Much has been written about the metaphysics of passing qualified plan for IRA benefits into or through a trust. That situation presupposes that you have a beneficiary whose economic interests need to be under the control of someone else. While most IRAs are maintained by financial institutions as custodial accounts, subject to the direct control of the beneficiary, there is a second species of IRA called “a trusteed IRA.” These are offered by national banks and formulate all of the IRA rules under a trustee arrangement where the discretion of the beneficiary as to investments or as to distributions, can be vested in the trustee. While the conduit rules will be applied (discussed below), the trusteed IRA can be an effective arrangement to regulate the economic benefit going to the beneficiary of the IRA death benefit.

17. CONDUIT TRUST AS A SAFE HARBOR. The safe harbor for using an IRA coupled with a trust for a beneficiary, is to provide for conduit treatment. This means that the required minimum distributions will be directly distributed by the trustee to the beneficiary and therefore the beneficiary is treated as the measuring life for the spread out. (See Form 17).

18. SO YOU STILL WANT AN ACCUMULATION TRUST FOR THE IRA OR RETIREMENT PLAN BENEFIT? DON’T DO IT!

19. 529 PLAN FOR ADULT CHILDREN. 529 College Savings Plans have been in the news lately. President Obama floated the idea of limiting the 529 arrangement because, in his view, it is overwhelmingly slanted towards the wealthy. Of course he is right. In fact he is so right, he and Michelle contributed $240,000 to a 529 College Savings Plan for their daughters. The 529 account is the only species of property interest which can qualify as a completed gift, front load five years of annual exclusion gifts, remain under the investment and distribution control of the donor, be excluded from the assets of the donor for creditor claim purposes, and still not be an asset of the donor’s estate for estate tax purposes. So what do you do when the kids are out of college but have not started families of their own? Consider a front loaded 529 College Savings Plan for an adult child and, when grandchildren come along, change the beneficiary from the child to the grandchild. There are no income tax consequences. However, the child is treated as making a taxable gift (not eligible for the annual exclusion) when the beneficiary is shifted to a



lower generation. So what? You have simply used some of the child’s ever-increasing unified exemption, the child files a gift tax return, and you have prefunded a tax favored account to meet future educational needs of the family.

20. BEQUEST TO 529 PLAN ACCOUNT. Can a bequest be made to a 529 College Savings Plan? There is no commentary on that matter but there is no reason you could not. Remember each state has a “maximum” account amount after which no additional contributions can be made. That number is usually in the $300,000 range. So a bequest to a 529 College Savings Plan, on behalf of a grandchild, with the child as the owner and the grandchild as the beneficiary, might be made in a single payment of the full maximum contribution amount.

21. HOW MUCH CAN BE PUT IN 529 PLANS? We just discussed that each state has a ceiling beyond which no additional contributions can be made. There is no coordination of these limitations among the states. In other words, conceivably you could have a 529 in each of 50 states, with each maxed out in the range of $300,000.

PLANNING TURNED UPSIDE DOWN; INCOME TAX BASIS AND TRANSFER TAXES

22. DEFUND THE ESTATE OF THE SURVIVING SPOUSE FOR OREGON TAX; DEATHBED MARGIN LOAN AND GIFTS. The Oregon estate tax can be reduced by lifetime gifts, including those made shortly before the time of death. However, preservation of stepped up basis for appreciated assets with build in gain can make the estate tax savings meaningless. A client with substantially appreciated marketable securities, typically held in a brokerage account, should consider taking out a margin loan shortly before death. The proceeds of the margin loan can be used to make intervivos gifts, defunding the Oregon taxable estate, and after death those assets can be liquidated with little or no recognition of gain. Of course the proceeds are then used to pay off the margin loan. Be careful to ensure that the client has personal liability (recourse) on the loan so that the obligation is a personal liability of the decedent and therefore a debt deducted in determining the taxable estate.

23. GIVE LOW BASIS ASSETS TO DYING SPOUSE; ESTABLISH BYPASS TRUST FOR SURVIVING SPOUSE WITH H.E.S.M. IRC §1014(e) negates basis step up at death if property is acquired from a decedent and, within the one year period prior to the date of death, the recipient of that property had transferred the same property to the decedent. If low basis property was transferred by



gift to the decedent from the surviving spouse, and instead of the property passing back to the surviving spouse the property funds a bypass trust, does this constitute having the property “be acquired from the decedent?” PLR 9321050 implies that a property interest reverting to the original donor spouse in the form of an income interest causes the actuarial value of the income interest to be the “property” being returned to the original donor. If the bypass trust instead provides only for the discretionary distributions under H.E.S.M., there is a good argument that the property will receive a 100% basis step up.

24. LEAVE $1 MILLION TO CHILDREN AT THE FIRST DEATH (USING LOW BASIS ASSETS). With the huge spread between the federal estate tax exemption and the Oregon estate tax exemption, many clients do bypass trust tax planning only for the purpose of preserving the first decedent’s Oregon exemption amount. This ends up with a $1,000,000 bypass trust and the balance of the estate passing to the surviving spouse. If there are plenty of assets to take care of the surviving spouse, why not leave the $1,000,000 exemption amount directly to the children at the first death? In addition, this $1,000,000 gift to the children can be orchestrated to utilize appreciated assets that receive a basis step up at the death of the first spouse.

25. UNDO LLC, PARTNERSHIP AND S-CORPORATION DISCOUNTS. Much of our valuation (“discounts”) planning was put in place when the United States estate tax exemption amount was in the $1,000,000 range. Now, with the combined exemptions of husband and wife approaching $11,000,000, basis step up can be much more valuable than estate tax minimization (but always keeping in mind the Oregon estate tax exemption amount). Current governing documents for business and investment entities should be reviewed in light of negating the discount planning we put in place before. Consider giving each owner (or each owner with a certain threshold amount of equity) a put option at liquidation value or an option to cause dissolution of the entity during lifetime. (See Form 25). Note that for farmers and ranchers with estates in the $5,000,000 to $10,000,000 range, the Oregon Natural Resources Credit is likely to eliminate Oregon estate taxes if planned correctly. This is a category of client which should give careful attention to modifying organizational documents to negate discount planning and instead optimize basis step up.

26. DIVISIVE REORGANIZATION FOR LLC WITH HIGH BASIS AND LOW BASIS ASSETS; MAKE THE 754 ELECTION FOR LOW BASIS LLC. Paul S. Lee of Bernstein Global Wealth has an excellent presentation regarding the simultaneous equation analysis of transfer tax minimization versus basis step up



maximization. One idea Paul shares in his presentation is pre-death planning with business interests which are taxed as partnerships. Typically this will be an LLC. Paul notes that the 754 election is an all or nothing concept with respect to each entity taxed as a partnership. Paul points out that there may be appreciated assets as well as depreciated assets in a family investment company LLC and therefore making the 754 election can be either detrimental or beneficial depending upon the asset mix. Paul suggests that, in planning for the passing of one or more LLC members, a divisive reorganization be considered. That reorganization would create two mirror image LLC’s out of the original LLC but with the target appreciated assets in one of the resulting LLC’s and the non-appreciated or loss assets in another. This way, post-death, the entity with the appreciated assets can make the 754 election.

TRUSTS FOR ALL SEASONS AND REASONS

27. THE ALL IN ONE TRUST THAT DOES EVERYTHING. In 2012 the great uncertainty over “Sunset” spurred many wealthy clients to make large gifts in the $5,000,000 zone. In order to cushion the shock of parting with large amounts of wealth, clever planners devised the equivalent of an intervivos credit exemption bypass trust with the donor’s spouse as trustee, withdrawal rights under “H.E.S.M.”, and possibly a mandatory income interest and limited power of appointment granted to the trustee spouse. From this beginning a plethora of articles began describing a variety of multi-faceted intervivos trusts with lots of catchy titles. Some of the nomenclature: Rainy Day Trust, Swiss Army Knife Trust, Spousal Limited Access Trust (“SLAT”), Spousal and Family Exemption Trust (“SAFE” Trust), Supercharged Credit Shelter Trust (service mark of Prof. Mitchell M. Gans, Diana S.C. Zeydel and, of course, Jonathan G. Blattmachr). My personal favorite is “Cake Trust” (have it and eat it too; and I have not registered a service mark). So what features can we include? What should this trust be and not be? What it can be:

• A trust controlled by the grantor’s spouse during his or her lifetime. • An income tax “defective” grantor trust to the donor spouse. • An intervivos credit shelter trust. • A limited spousal access trust. • A generation skipping (zero inclusion ratio) trust. • An asset protection trust as to beneficiaries. • A trust with beneficiaries who are trustees in control.



• A charitable trust coupled with a donor advised fund.

What it should not be: • An irrevocable life insurance trust. • A crummey (withdrawal) annual exclusion trust. • A reciprocal trust. • A QTIP trust.

So now we need a name and I’ll use “Universal Trust.” The Universal Trust can be the central vehicle for wealth value freezing and transmission. There can be two Universal Trusts, each established by one of the spouses so long as the trusts are not “reciprocal.” (See Form 27). The leveraging provided by grantor trust status is still good law until a “comprehensive” overhaul of the IRC occurs. I use two defects. First, the asset swap power held in a non-fiduciary capacity by the grantor (IRC §675(4)(c)). See Rev. Rul 2008-22, PLR 9504024 and 200434012. The second defect is the power to add to a class of beneficiaries, for instance charities, held by a non-adverse (disinterested) party (IRC §674(a)). I provide that both powers can be waived and if both are in fact waived, grantor trust status ends. I do not have the courage to include a “toggle on” feature. Properly structured the Universal Trust is: (1) receiving gifts within the unified exemption generating no gift tax; (2) excluded from the grantor’s estate; (3) exempt from generation skipping tax within the constraints (or lack of constraints) of the Rule Against Perpetuities; (4) income taxed to the grantor during his or her life as long as the “defects” are not waived; (5) to which the grantor can sell assets without triggering gain; and (6) which can enter into “Wandry” type transactions (discussed below) without the income tax uncertainty of splitting entity ownership among taxpayers during the open gift tax statute of limitations. Maybe the frosting on the Universal (Cake) Trust is utilization of the swap power by a grantor with a short life expectancy. If the Universal Trust has low basis appreciated assets swapped by the grantor for cash of equivalent value, a significant basis step up can be achieved with no income tax consequences from the transaction (Rev. Rul. 85-13). Some commentators have toyed with the idea that the trustee (non-donor) spouse could be granted and exercise a limited power of appointment to create an overlife life estate for the original donor spouse if the donor is the surviving spouse. Professor Jeffrey N. Pennell points out this would cause inclusion in the original donor



spouse’s estate (defeating the planning purpose) because of the common law principle that a nongeneral power of appointment is treated as if the power holder were the donor’s agent and that the exercise relates back to the trust inception. Thus the donor would be treated as having retained beneficial interest under IRC §2036(a)(1).

28. GIFT AND SALE OF HARD TO VALUE ASSETS TO THE GRANTOR TRUST USING WANDRY TYPE FORMULA. Wandry v. Commissioner, TCM 2012-88 (3/26/12) has energized the use of “defined value clauses” in intervivos estate planning. Being blessed to practice in the 9th Circuit we also have Petter v. Commissioner, TCM 2009-280, affirmed 653 F.3d 1012 (9th Cir. 2011). Some use these formulas only coupled with a charitable interest. Others see the clear acceptance of defined value formula clauses in the testamentary context (Rev. Proc. 64-19, and GST Treas. Reg. §26.2632-1(6)(2)(ii) and -1(d)(1)) as a policy position the IRS should follow consistently. If a gift formula can be defined in terms of assets with a specific dollar value as finally determined for United States Gift Tax purposes, can the excess assets over the gift amount be sold to the same donee trust at the same final value? Yes. The result is a fixed number of units, shares, etc. of a closely held entity being transferred to the income tax grantor trust, with a portion being a defined value gift and the rest as a sale to the same grantor trust. (See Form 28). For a comprehensive outline see Ronald D. Aurutt, Grantor Retained Annuity Trusts (GRAT) and Installment Sales to Grantor Trusts, at the mcguirewoods.com website. These initial Wandry transactions were reported on 2012 gift tax returns filed starting April 15, 2013. We are now in the third year of the gift tax statute of limitations. Question: If the IRS does not challenge the gift value reported, can it still challenge the sale portion as a bargain sale gift equivalent? This would depend on whether the sale component was disclosed on the gift tax return. Now for the cautions:

• The IRS is far from pleased by this strategy and the leverage provided by the sale to a grantor trust. The Tax Court docketed Estate of Marion Woelbing v. Commissioner, Docket No. 30260-13, discloses the IRS frontal assault based on the assertion that the note taken back by the grantor as consideration for the sale is a sham, that the note has zero value, therefore the transfer was a gift



transfer “for less than adequate consideration.” Other theories of the IRS are that the transfer is not a “bona fide transaction” (therefore ignored for estate tax purposes) and that IRC §2702 applies for estate tax purposes because the note has zero value. See Steve R. Akers’ article, Sale to Grantor Trust Transaction (Including Note With Defined Value Feature) Under Attack, Estate of Donald Woelbing v. Commissioner (Docket No. 30261-13) and Estate of Marion Woelbing v. Commissioner (Docket No. 30260-13), February 4, 2014. A good update appears in BNA Weekly Report, 3/23/15, IRS Challenge to Installment Sales With Grantor Trusts Fuels Concerns Over Strategy, authored by Diane Freda. An important lesson is to make the sale transaction as “bona fide” as possible.

• The purchasing grantor trust must have economic substance to make it capable of servicing its debt to the grantor. A 10% equity cushion is generally regarded as a safe harbor. Ron Aucutt’s outline discusses trust capitalization in the context of the sale of assets for a note at Section VIII-K.

29. BORROW MONEY AND HAVE GRANTOR BUY LOW BASIS ASSETS FROM THE GRANTOR

TRUST. If a grantor trust is already in place, consider having the grantor with a short life expectancy purchase those assets from the trust for cash; perhaps with borrowed funds. Since the transaction is disregarded for income tax purposes the grantor would then hold the low basis assets at death accomplishing a basis step up.

30. SEPARATE GRANTOR TRUSTS FOR SEPARATE ASSETS (BUSINESSES). The grantor trust provisions are very beneficial from a transfer tax standpoint but, from the economic standpoint of the grantor, can present a cash flow hardship. A prime example would be a liquidity event (sale or merger) of a business held by the grantor trust which might trigger a substantial amount of gain with that tax being covered by the grantor. Grantors do not always like to pay income tax for the benefit of someone else. When structuring the grantor trust with all of the features discussed previously, consider establishing a separate grantor trust for each equity interest held in trust. For instance, the donor might want to transfer an equity interest in a real estate venture, stock in an actively traded business, or units of LLC member interest in a family investment company. Consider a separate grantor trust for each of those ownership interests. That would permit the settlor to “turn off” grantor trust status as to one entity but not as to other entities if a major income tax realization event is about to take place.



31. INHERITOR’S TRUST FOR CHILD WITH CREDITOR-MARITAL PROBLEMS. A spendthrift trust formulated to hold a child’s inheritance, possibly with the child acting as trustee and having withdrawal rights under H.E.S.M., can provide meaningful asset protection while still providing ongoing economic benefit and partial control to the child. The trust can provide meaningful asset protection as well as transfer tax minimization. Consider the Inheritor’s Trust as a substitute for the premarital agreement that never got drafted or never got signed.

IDEAS FROM ALL OVER

32. GRAEGIN LOAN LEVERAGE; OREGON TAX SAVINGS BONUS. Effective in 1998 Congress amended the provisions of IRC §6166 to provide that interest payable on deferred estate taxes under IRS §6166 was not deductible for purposes of computing the taxable estate. (IRC §2053(c)(1)(D)). Prior to that amendment interest on deferred estate taxes became deductible as paid necessitating the equivalent of an amended federal estate tax return each year during the 6166 period. Oregon has no provision comparable to the special rules under IRC §6166. While Oregon permits deferrals on a discretionary basis, statutory interest is payable with each installment, and would constitute a deductible item under IRC §2053. So if you defer both federal and Oregon estate taxes you will still be in a position requiring amendment of both returns in each year if you take the Oregon interest as a 2053 deduction. Clients are often concerned about having liquidity to pay the estate tax. Many ILITs have been proposed and formulated to provide liquidity at the death of the surviving spouse. However, compared to §6166 and ILIT planning, the Graegin loan concept is mathematically superior in terms of net present value passing to beneficiaries by allowing an estate tax deduction (both federal and Oregon) for 100% of the interest that will accrue over the term of the Graegin loan, so long as the loan requires full payment of all the interest whether or not there is a prepayment. The Graegin loan is only available to the extent that the estate lacks liquidity to pay estate taxes. Therefore planning to be illiquid may provide a substantial estate tax savings at the combine state and federal 50% estate rate. The Graegin loan allows an estate tax deduction for all the interest that will accrue over the term of the loan so long as the loan requires payment of all interest that would accrue over the loan whether or not there is a prepayment. A typical Graegin loan arrangement would have the estate obtain the loan from a financial institution with collateral provided by an LLC or other investment company affiliated with the family. The estate would pay a loan fee to the family investment company, deducted on the 706, for its provision of the collateral.



Some arrangements have been made where the loan is directly from the family LLC when that LLC is owned in similar proportions to the beneficial interests in the estate. The IRS is attacking those arrangements as shams.

33. PROTECTIVE 6166 ELECTION EVEN IF LOOKS LIKE THE BUSINESS DOESN’T QUALIFY. Even if the estate looks like it would not qualify for the threshold of §6166 (35% of the value of the adjusted gross estate being in closely held businesses), consider making the §6166 election anyway. It is possible that the estate’s perception of value will be different from that of the IRS, and having the §6166 election in place can ease the burden of paying tax while the valuation dispute is resolved.

34. DO PLANNING IN LITTLE CHUNKS DURING LIFETIME WITH LOTS OF GIFT TAX RETURNS; THE IRS PROBLEM OF FIGURING WHICH QUAIL TO SHOOT IN A BIG COVEY. The IRS audits to produce maximum revenue despite pronouncements to the contrary. With its limited resources the audit lottery is based on the revenue potential to the government. Lifetime planning allows multiple incremental transfers each of which carries a smaller tax potential than leaving all of the assets to be included on the 706. Consider breaking up gifts to grantor trusts or Wandry-style sales in to two years, straddling the closing of business on December 31 and the beginning of business on January 1. This splits the transaction between gift tax returns in two years. This also allows you to use a single valuation report for gifts and sales disclosed in separate years. Also consider limiting values using defined value clauses to preserve meaningful amounts of exemption. The IRS will certainly take into account its revenue potential in challenging a valuation when the donor has significant remaining exemption to cushion any revaluation by the IRS. In the case of gift tax returns filing often is a good idea.

35. OREGON NRC; PLANTING CROPS AND TREES AS “REPLACEMENTS” FOR HARVESTED ASSETS. Oregon’s Natural Resources Credit (ORS 118.140) provides for recapture of Oregon estate tax if the NRC was claimed and NRC property is not held for five out of the eight calendar years following the decedent’s death. A disposition will trigger recapture unless there is replacement with real or personal property after the credit is claimed and that replacement must take place “within one year.” Those who grow trees for a living, farm for a living or raise livestock for a living typically need to dispose of timber, crops or livestock on a periodic basis to generate cash flow (that is what they are in business for). The provision allowing replacement without recapture (ORS 118.140(9)(d)) does not make clear that the proceeds realized from the sale of timber, crops or livestock has to be the source for acquiring the replacement property.



However, Oregon Department of Revenue Form OR 706-A (Oregon Additional Estate Transfer Tax Return, See Exhibit 35) makes it clear that the Oregon Department of Revenue thinks that there has to be tracing from the proceeds of the disposed property. So for a tree farmer, will it be sufficient to replant within one year? For the rancher who has sold cattle, does a newborn calf replace a heifer sold to a feed lot? Prudence would suggest that dollar amounts be identified and traced through to the replacement property even if the size of the herd has to be expanded or the size of the tree farm has to be enlarged. With the disposition of inventory (timber, crops or livestock) if proceeds must be traced on a monetary basis to the replacement property, how does the entity make distributions to its shareholders or members as it normally would? The answer may be that utilization of the NRC may trigger the need for line of credit borrowing to balance out the cash flow and permit the owners to receive distributions.

SPECIAL LESSONS FROM THE PAST

36. WHY A CYNIC THINKS THE FEDERAL ESTATE TAX WILL NOT BE REPEALED. We all know that the Republican-controlled Congress will pass legislation repealing the estate tax, but presumably preserving the stepped up basis. We also know that the sitting President will veto that legislation. This scenario fits perfectly with the Republican objective to keep donors with large estates pumping money into the coffers to press forward estate tax repeal. But will repeal really happen when that would eliminate a lucrative cause for which to fight?

37. TRAIN YOUR ASSOCIATES AND PARALEGALS. See checklists at Forms 37A and 37B.

38. REMEMBER EARL LONG’S ADMONITION. Be careful! These words of wisdom are available after this presentation in the lobby. (See Form 38).



[client last name] Residential Trust Agreement Page 1 of 2

FORM 2

[CLIENT LAST NAME] RESIDENTIAL TRUST AGREEMENT

BETWEEN: [CLIENT FULL NAME] (the “Settlor”); AND: [CLIENT FULL NAME] (the “Trustee”). DATED: __________________, 2011

1. By Warranty Deed executed concurrently with this [client last name] Residential Trust Agreement (the “Trust Agreement”), the Settlor has conveyed to the Trustee the legal title to certain real property and improvements located at [street address], also known as Map & Tax Lot Number [map & tax lot #] (tax account number [tax account #]), and more particularly described as:

[legal description]

in Lane County, Oregon (the “Property”).

2. The Settlor shall have the exclusive right to occupy, use, inhabit and enjoy the Property as [his/her] personal residence, or otherwise, during [his/her] lifetime.

3. All economic rights in the Property shall be enjoyed by the Settlor during [his/her] lifetime, and no rent shall be paid or payable with respect to the use or occupancy of the Property by the Settlor under this Trust Agreement. In addition, any rent or other income derived from use of the Property, whether or not the Settlor is occupying or using the Property, shall be the sole and exclusive property of the Settlor.

4. During the term of this Trust Agreement the Settlor shall pay all expenses associated with the use and maintenance of the Property including, but not limited to, property taxes, utilities, maintenance fees, insurance and other costs associated with the Property’s use and occupancy. The Settlor shall add the Trustee as a named insured with respect to any liability and casualty insurance policies maintained with respect to the Property.

5. Upon any sale, condemnation or other conversion of the Property by sale, exchange or otherwise, the resulting property or proceeds shall be the sole and exclusive property of the Settlor during [his/her] lifetime.

6. This Trust Agreement shall terminate at the time of the death of the Settlor and the Property shall then be conveyed to [beneficiary/successor trustee name] if living or to the issue of [beneficiary/successor trustee name] by right of representation if [beneficiary/successor trustee name] is not then living.

7. [client full name] shall act as the Trustee under this Agreement. If [client full name] dies, resigns, becomes incapacitated or otherwise ceases to act as the Trustee, then [beneficiary/successor trustee name] shall act as successor Trustee.



[client last name] Residential Trust Agreement Page 2 of 2

8. The Trustee shall have all powers conferred on a trustee by the laws of Oregon for the orderly administration of the trust estate, including those specified in the Oregon Uniform Trust Code as it may be amended from time to time.

9. This Trust Agreement may be modified, amended or revoked by the Settlor at any time.

Dated and effective as of the date first appearing above.

SETTLOR: TRUSTEE: ______________________________ ___________________________________ [client full name] [client full name] STATE OF ____________ ) ) ss. County of ______________ ) On this ____ day of ______________, 20__, personally appeared the above named [client full name], as Settlor and Trustee, and acknowledged the foregoing instrument to be [his/her] voluntary act and deed. _____________________________ Notary Public for _______________ My Commission Expires:



FORM 4

Amendment No. 1

AMENDMENT NO. ____

________________ REVOCABLE TRUST

On_______________, __________________as Settlor and __________________as Trustee entered into the ______________________________Revocable Trust Agreement (the “Agreement”). Pursuant to Section _____________of the Agreement __________________has reserved the power to modify or alter the Agreement with the consent of the Trustee. ____________________, as both Settlor and Trustee, hereby amends the Agreement as follows: Section _________________ of the Agreement is amended and restated to provide as follows:

“____. Primary and Successor Trustees. _______________and ___________________________shall both serve as the Trustee under this Agreement and each may act alone with all the powers and authority of the Trustee without the consent of the other. If ____________________________fails or ceases to serve as Trustee, ____________________________shall serve as Trustee. If all of the above named persons fail or cease to serve as Trustee, ______________________________shall serve as Trustee.”

This Amendment No. 1 is effective as of this date. Executed this ____ day of _________________, 201__. ______________________________ _________________, Settlor ______________________________ __________________, Trustee ______________________________ __________________, Trustee



FORM 5

(20) Client Status. To act on my behalf as client with my attorney, accountant, broker, insurance agent and other professional advisers (without waiver of any confidentiality privilege), to receive any confidential information about me, to exercise or waive any confidentiality privilege on my behalf, and to hire or discharge any of the foregoing on my behalf as client.



EXHIBIT 14 Roth Conversion Checklist 1. Client has sizable IRA 2. Client has liquid assets outside IRA 3. Client unlikely to be in lower income tax brackets later in

life 4. Client can afford the tax in 2010 without spreadout of tax

4.1. Elect out of 2011 and 2012 taxation 5. Client can hold the Roth without consumption to pass to

children 6. Children will be patient and spread out tax free

distributions 7. Client believes the Oregon "surtax" (Measures 66 and 67)

are permanent 8. Client willing to use the Roth at the aggressive side of

the investment spectrum with long deferral expected 9. Remember "recharacterization" for those who have

buyers' remorse up to October 15 of 2011 9.1. Maybe do multiple conversion and can "unconvert" some but not all of the

separate roth accounts 10. Consider that Congress could decide to tax Roth

accounts later



FORM 17

____. Qualified Retirement Plan and IRA Benefits. All other provision of this Agreement notwithstanding, during each calendar year beginning with the year of the Settlor’s death, the Trustee shall withdraw from each plan, trust, account or other arrangement subject to Section 401(a)(9) of the Code (the “Qualified Account”), and of which the Trustee or this Trust is the beneficiary, the Minimum Required Distribution (the “MRD”) for that year. The Trustee shall immediately distribute the MRD to the Beneficiary during the Beneficiary’s lifetime. All distributions received by the Trustee from a Qualified Account exceeding those described in the preceding sentence shall also be immediately distributed to the Beneficiary during the Beneficiary’s lifetime. After the death of the Beneficiary, any distribution received by the Trustee from a Qualified Account shall be held and applied as part of the Trust Estate. Distributions described in this Section ___ shall not be charged with or reduced by any cost or expense including, but not limited to taxes, commissions, trustee compensation, or expenses of administering this Trust.



FORM 25

AMENDMENT TO OPERATING AGREEMENT OF

________________________, LLC

Recitals 1. Effective _____________________, ________________. and ____________________as Trustees of the __________________________________Trust (the “Member”) entered into a form of Operating Agreement respecting___________________________, LLC, an Oregon limited liability company, (the “LLC”). Pursuant to Section __________ of the Operating Agreement, Members holding a majority of units hereby amend the Operating Agreement as follows. Amendments. 1. Section __________ is amended to provide as follows:

____. Withdrawal. A member may voluntarily withdraw from the LLC and upon withdrawal the LLC shall be dissolved and the assets of the LLC shall be liquidated and distributed in accordance with Section_______.

2. Section ___________ is amended and restated to provide as follows: _____. Events of Dissolution. In addition to the provisions of Section ____, the LLC shall be dissolved

and its assets distributed upon affirmative vote of members holding _______percent (___%) of the units.

3. Section _____ is deleted. 4. Section _____ is deleted. 5. Section 8.3 is amended and restated to provide as follows: 8.3. Transferee Status. Notwithstanding any other provision of this

Agreement, any person who succeeds to the interest of a member, and complies with the provisions of Section ____, shall be admitted as a member and shall not be an assignee.

Dated and effective______________. ____________________________Trust By: _______________________________ By: ________________________________ _________________, Trustee ______________, Trustee



SPOUSAL EXEMPTION CAKE TRUST OR EXHIBIT 27SPOUSAL ANNUAL EXCLUSION-CREATED BY HUSBAND AND WIFEAVOIDING THE RECIPROCAL TRUST DOCTRINE

TRUST FEATURE TRUST 1 TRUST 2Settlor

Husband xWife x

Initial BeneficiaryHusband

WifeIssue

Initial TrusteeHusband

WifeSuccessor Trustee

childrenTrustee Names

Settlor Names (non subordinate or non-adverse)Additional Beneficiaries

Discretion to add charitiesIssue

Collateral RelativesGrantor trust because:

Power of substitutionsNonadverse party can add charities

Authority to pay insurance premiums on Life Insurance insuring Grantor

5 and 5 Withdrawl RightsStandards of Distribution

IncomeIncome only

Principal and Income for Health, Education, Support or Maintenance

Health OnlyOnly if net worth less than $x

Deferred for X yearsOnly with the consent of a non-adverse fiduciary

Standards for Distributions to Additional Beneficiaries

Principal and Income for Health, Education, Support or Maintenance

Income or Principal for Health and Education of Children Only

Limited Power of Appointment?By Will only

Intervivos and by WillTrust Termination

90 yearsR.A.P. 21 year rule

Distribution on TerminationIssue by Right of Representation

Children Per CapitaWhen Established? Now Later



FORM 28

STOCK GIFT AND SALE AGREEMENT Page 1 of 3

STOCK GIFT AND SALE AGREEMENT

PARTIES: ________________, Trustee of the _________________________ Long Term

Family Trust dated____________________, (“Purchaser”); and

__________________and______________________________, Trustee of the ______________________Revocable Trust UTD ______________(“Seller”)

DATED EFFECTIVE: __________________________ (the “Effective Date”)

AGREEMENT

In consideration of the mutual promises made herein, the parties agree as follows:

1. GIFT AND SALE OF STOCK

Seller hereby sells and transfers to the Purchaser as of the Effective Date _____________________( ) shares of the Class B nonvoting stock of__________________________. (the “Stock”). Of the Stock so transferred Seller makes a gift to the Purchaser of the lesser of: (1) all the Stock; or (2) that number of shares of the Stock which have a value, as of the Effective Date, equal to _____________________($__________________) as finally determined for United States Gift Tax purposes. That number of shares of the Stock not transferred by gift as provided in the preceding sentence is and shall be sold by the Seller to the Purchaser as of the Effective Date as provided below (the “Sold Stock”).

2. PURCHASE PRICE

The purchase price for the Sold Stock shall be the fair market value of the Sold Stock as of the Effective Date, based on the value of the Shares transferred by gift as finally determined for United States Gift Tax purposes (the “Purchase Price”).

3. PAYMENT

The entire balance of the Purchase Price plus all accrued interest will be represented and payable in the manner provided by the promissory note of Purchaser in the form attached as Exhibit A.

4. SELLER’S CLOSING DOCUMENTS

Upon closing, Seller shall execute and deliver to Purchaser a stock certificate or certificates for the Stock, along with all other documents and agreements necessary to effect transfer of ownership of the Stock to Purchaser.

5. PURCHASER’S CLOSING DOCUMENTS

Upon closing, Purchaser will execute and deliver to Seller the following documents:



FORM 28


5.1. Promissory Note. A promissory note in the form attached as Exhibit A.

5.2. Stock Pledge Agreement. A stock pledge agreement in the form attached as Exhibit B.

5.3. Security Agreement. A security agreement in the form attached as Exhibit C.

5.4. Financing Statements. Uniform Commercial Code financing statements, in a form reasonably satisfactory to counsel to Seller, as required to perfect Seller’s security interest(s).

6. SELLER’S REPRESENTATIONS AND WARRANTIES

Seller represents and warrants to Purchaser that Seller is the sole owner of the Sold Stock, free and clear of all encumbrances, and has good right to sell and transfer all such stock to Purchaser. This representation and warranty will survive the closing of the sale.

7. MISCELLANEOUS PROVISIONS

7.1. Transferability. Purchaser shall not assign or transfer any interest of Purchaser under this Agreement.

7.2. Binding Effect. The provisions of this agreement will be binding upon and inure to the benefit of the heirs, personal representatives, successors, and assigns of the parties.

7.3. Notice. Any notice or other communication required or permitted to be given under this Agreement must be in writing and mailed by certified mail, return receipt requested, postage prepaid, addressed to the parties at the following addresses:

Name Address

All notices and other communications will be deemed to be given at the expiration of three days after the date of mailing. The address of a party to which notices or other communications must be mailed may be changed from time to time by giving written notice to the other party.

7.4. Litigation Expense. In the event of a default under this Agreement, the defaulting party shall reimburse the non-defaulting party or parties for all costs and expenses reasonably incurred by the non-defaulting party or parties in connection with the default, including without limitation attorney’s fees. Additionally, in the event a suit or action is filed to enforce this Agreement or with respect to this Agreement, the non-prevailing party or parties shall reimburse the prevailing party or parties for all costs and expenses incurred in connection with the suit or action, including without limitation reasonable attorney’s fees at the trial level and on appeal.

7.5. Waiver. No waiver of any provision of this Agreement will be deemed, or will constitute, a waiver of any other provision, whether or not similar. No waiver will



FORM 28


constitute a continuing waiver. No waiver will be binding unless executed in writing by the party making the waiver.

7.6. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the state of Oregon.

7.7. Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to its subject matter, and it supersedes all prior contemporaneous agreements, representations, and understandings of the parties. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by all parties.

SELLER: _____________________________________ ________________________

PURCHASER: ______________________________________ ______________________________



150-104-007 (Rev. 07-14) 1 Form OR706-A Instructions

Instructions for Form OR706-A, Oregon Additional Estate Transfer Tax Return

Use this form only if you inherited natural resource property on or after January 1, 2012. If you inherited natural resource property before January 1, 2012, use Form IT-1A, Oregon Additional Inheritance Tax Return.

DefinitionsThe terms we use in these instructions are defined in Oregon Revised Statute (ORS) 118.140 and Oregon Administrative Rule (OAR) 150-118.140.

“Property” means natural resource property or commer-cial fishing property used for the natural resource credit on Form OR706.

“Property owner” means you, the person who received property from the decedent.

“Qualified use” means to use the property as a natural resource or commercial fishing business property.

“Disqualified property” means property that:

• You disposed of, or stopped qualified use of, beforefive out of eight calendar years had passed after thedecedent’s death.

• Was subject to an involuntary conversion and you didnot reinvest all of the proceeds from the involuntaryconversion.

“Involuntary conversion” as defined in the Internal Rev-enue Code (IRC), section 1033.

Taxable eventsThe property owner causes a taxable event if the property is not used as set out in ORS 118.140.

• The property is disposed of or the qualified use of theproperty stops before it is used for five out of eightcalendar years after the decedent’s death.

• Involuntary conversions—you may owe additional taxif you don’t reinvest the proceeds or reinvest only partof the proceeds from the involuntary conversion.

As the property owner, you are responsible for reporting and paying any additional estate transfer tax imposed by ORS 118.140. You must file Oregon Form OR706-A to report the taxable event. The additional tax is limited to the tax credit claimed on Form OR706. See example 1.

If you and other qualified family members shared owner-ship of the property and you stop the qualified use, your additional tax will be based only on your share of the property. See example 2.

Nontaxable events for disposition to a family memberProperty is not disqualified if you transfer the property to:

1. Another member of the decedent’s family; or

2. The decedent’s registered domestic partner; or

3. Another entity eligible for the credit. Note: Nontaxableevents described above relate only to the addition estatetransfer tax per chapter 118. If a sale takes place, evento a family member, the seller may have a capital gainwhich would be reported on their personal incometaxes.

See example 3.

Even if you don’t owe tax, you must complete and file Form OR706-A to notify us of a change in property own-ership. Complete only parts 1, 2, 5, and 6 of this form.

Replacement of natural resource property and involuntary conversionsRead below for information on when to file a return in the case of replacement property or involuntary conversion.

Replacement of property. After the credit is claimed, you may replace natural resource property with real or personal property, as long as the replacement property is used as natural resource property and all proceeds are reinvested in natural resource property. Real property for which the credit was claimed may only be replaced with real property. The replacement property must be acquired within one year to avoid a disposition and additional tax. See example 4.

Involuntary conversions. If, within two years of an invol-untary conversion, you reinvest all proceeds in qualified replacement property, you won’t owe additional estate transfer tax. Complete parts 1–3 and 6 to notify us that an involuntary conversion took place, even though you owe no tax. If you don’t replace the property within two years of the involuntary conversion, you’ll owe additional tax.

Partially taxable involuntary conversions. If you paid less for the qualified replacement property than you received in the involuntary conversion or you don’t rein-vest the entire amount received from the conversion, then the conversion is partially taxable. See example 5.

Return due dateGenerally. File Form OR706-A and pay any additional taxes due within six months after you disposed of the property or ended the qualifying use.

Exchange or involuntary conversionThe tax return and additional tax are due six months from the taxable event. A taxable event takes place only when your property isn’t replaced within the allowed time. For

EXHIBIT 35




example, if your property is subject to an involuntary con-version on February 15, you have until February 15 of the following year to replace the natural resource property. If you don’t do so within the year, a taxable event has taken place. The additional estate transfer tax return is due six months from the taxable event (in this example, August 15, six months from February 15).

Extensions To request an extension of time to file or pay, you must complete and mail federal Form 4768 to us by the original due date of Form OR706-A.

Extension of time to file. When we receive your exten-sion request, you’ll have an automatic six month extension of time to file. Include a copy of this extension with your Form OR706-A. An extension of time to file doesn’t extend the time to pay the tax.

Extension of time to pay tax. Along with your federal Form 4768, you must also attach a written statement detailing why you can’t pay the tax by the original due date. If you don’t provide a written statement, the request will be denied. We’ll send you a copy of your extension request either approving or denying your extension. Once your tax return is filed and an extension to pay is approved, you must provide collateral in an amount twice the amount of unpaid tax to secure the debt. An extension of time to pay the tax does not extend the time to file the tax return.

Interest accrues on any unpaid tax during the extension period.

Interest and penaltyInterest owed on additional estate transfer tax starts the day after the due date of Form OR706-A, excluding extensions. If you don’t pay the tax within 60 days of our billing notice, the interest rate increases by 4 percent per year. If you have an approved extension of time to pay, the additional 4 percent wouldn’t apply.

Interest accrues on any unpaid tax during an extension of time to file. Here’s how to calculate the interest due:

Tax x Annual interest rate x Number of full yearsTax x Monthly interest rate x Number of monthsTax x Daily interest rate x Number of days

For periods beginning Annual Monthly Daily

January 1, 2015 4% 0.3333% 0.0110%January 1, 2014 4% 0.3333% 0.0110%January 1, 2013 4% 0.3333% 0.0110%

If you file your return after the due date, including the extended filing due date, add a late filing penalty of 5 percent to the tax amount. If you file your return more than three months after the due date or the extended

filing due date, add an additional 20 percent penalty for a total penalty of 25 percent.

If your tax is unpaid as of the due date, including any approved extension of time to pay, add a late payment penalty of 5 percent of the tax.

What to file• Form OR706-A for each property owner.• Copy of extension, federal Form 4768, if applicable.• Copy of Schedule NRC.• Copy of sales document as applicable.• Supporting documentation for involuntary conversion

of property.• On Form OR706-V, Oregon Estate Transfer Tax Payment

Voucher, 150-104-172, make sure you check the additional tax OR706-A return (148) box, include your name and Social Security number on the payment voucher in the name of executor box.

• Payment—make your check or money order payable to the Oregon Department of Revenue. Include your name, Form OR706-A, and the year the qualified use of the property stopped.

Line instructionsSpecific line instructions are provided for lines not fully described on Form OR706-A.

Part 1—Property owner information

Enter the name of the property owner, SSN, address, and phone number.

If you have applied for an extension to file or extension to pay, check the corresponding boxes.

Enter the name of the decedent from whom you inherited the property. Enter the decedent’s date of death and SSN.

Part 2—Description of property

Note: References to Schedule NRC are for “Schedule NRC for deaths on or after January 1, 2012.”

Column A—Enter the description of the disqualified property.

Column B —Enter the date the property was sold, exchanged, or converted.

Column C—Enter the value of the property listed in column A that was used in the formula to calculate the natural resource credit (NRC). This amount is from Schedule NRC, part 2, column D.

If jointly own property or only part of the property is disqualified, enter only the value of the disqualified portion or your share of the property. For example, the estate claimed natural resource property on Schedule NRC for a farm with a value of $1,000,000. The farm was inherited equally by two brothers. After a year of farming one brother decides to stop farming his share. Column C will have $500,000.




Column D—Enter the proceeds from the sale, exchange, or conversion of the property listed in column A.

Column E—Enter the amount from the proceeds that wasn’t reinvested in a qualified natural resource property.

Column F—Divide the amount of column E by column D (round to two decimal places). This is the disqualified percentage.

Column G—Multiply the percentage in column F with the amount in column C. This is the disqualified value.

Total the amounts in column G.

Part 3—Property replacement

If you’ve replaced your natural resource property with another qualified natural resource property or have reinvested the proceeds from an involuntary conversion on another qualified natural resource property complete this section.

Column A—Enter the acquisition date of the new property.

Column B—Enter the description of the newly acquired natural resource property as result of an exchange or involuntary conversion. Also describe which property was replaced. Note: this property should be listed on part 2.

Examples

Example 1

Jack inherited a farm from his father with a date of death value of $1,000,000 and farm equipment value of $200,000. After running the farm for 18 months, Jack decided to sell the farm and all the equipment. His Schedule NRC shows the following information: adjusted gross estate $1,950,000; tax payable $96,125; and natural resource credit claimed $59,598. Jack will pay additional estate transfer tax of $41,719, calculated as follows:

Line 1 ........$ 1,200,000 Line 7 .................$ 0.00Line 2 ........$ 1,200,000 Line 8 ............. $ 59,598Line 3 ......................$ 0 Line 9 ............. $ 59,598Line 4 ........ $ 1,950,000 Line 10 .....................42Line 5 ....................0.00 Line 11 ................. 0.70Line 6 ............. $ 96,125 Line 12 ........... $ 41,719

Example 2

Assume same facts as example 1, except Jack inherited the farm equipment and his brother, David, inherited the farm. After operating the farm together for 18 months, David decides to lease the farmland. Jack sells his farm equipment for $202,000 and buys a cottage with the sale proceeds. David doesn’t have additional estate transfer tax because the land remains in qualified use. Jack will file OR706-A, completing parts 1, 2, 4 and 6. On part 2, column C, Jack will enter $200,000, the value of the

equipment he inherited and sold. On column D he will enter $202,000 the proceeds of the sale and $0 on column E. Jack will pay additional estate transfer tax of $7,403, calculated as follows:

Line 1 ........$ 1,200,000 Line 7 ............. $ 49,024

Line 2 ...........$ 200,000 Line 8 ............. $ 59,598

Line 3 ........$ 1,000,000 Line 9 ............. $ 10,574

Line 4 ........ $ 1,950,000 Line 10 .....................42

Line 5 ....................0.51 Line 11 ................. 0.70

Line 6 ............. $ 96,125 Line 12 ............. $ 7,403

Example 3

Assume the same facts as in example 2, except that David and Jack sold the farm and the farm equipment to their brother Joseph. Because the property was sold to a family member, David and Jack don’t pay additional estate trans-fer tax per ORS 118.140. David and Jack may have a capital gain as a result of the sale of the property that would be reported on their personal income taxes.

David and Jack will each complete and file Form OR706-A, parts 1, 2, 5, and 6, to report the sale of the NRC prop-erty to family member.

Example 4

Anthony inherited a farm with value of $1,200,000 from his great aunt Vanessa, who passed away June 12, 2012. The estate claimed an NRC of $45,200 on Form OR706. On April 12, 2014, the city annexed the farm and paid Anthony $1,200,000. On May 16, 2015, Anthony decided to reinvest all of the proceeds from the involuntary conversion and purchased another farm for $1,200,000. Anthony doesn’t have to pay additional estate transfer tax because he reinvested all the proceeds from the involun-tary conversion on another farm within 2 years from the involuntary conversion. Anthony will file Form OR706-A and complete parts 1, 2, 3, and 6, to notify the Department of Revenue that the involuntary conversion took place.

Example 5

Assume the same facts as example 4, except that Anthony purchased another farm for $1,050,000 and purchased an RV for personal use for $150,000. Anthony would need to pay additional tax on the $150,000 because he didn’t rein-vest that portion of the proceeds. The tax payable on Form OR706 was $60,250, the NRC claimed was $45,200, and the adjusted gross estate was $1,600,000. Anthony would calculate his additional estate transfer tax as follows:

Line 1 ........$ 1,200,000 Line 7 ............. $ 39,765

Line 2 ...........$ 150,000 Line 8 .............$ 45,200

Line 3 ........$ 1,050,000 Line 9 ...............$ 5,435

Line 4 ........$ 1,600,000 Line 10 .................... 38

Line 5 ....................0.66 Line 11 ................. 0.63

Line 6 .............$ 60,250 Line 12 .............$ 3,424




Have questions? Need help?Email ........................................ [email protected] email address is not secure and confidentiality cannot be ensured. General tax and policy questions only. We ask that professional tax preparers and attorneys research questions before contacting us.

Write to .............................Estate Audit, Business Division Oregon Department of Revenue, PO Box 14110, Salem OR 97309-0910. Include the property owner’s SSN, the decedent’s SSN, and a daytime phone number for faster service.

General tax information ................ www.oregon.gov/dor Salem ............................................................ 503-378-4988 Toll-free from an Oregon prefix ............1-800-356-4222

Asistencia en español: En Salem o fuera de Oregon ..................... 503-378-4988 Gratis de prefijo de Oregon ...................1-800-356-4222

TTY (hearing or speech impaired; machine only): Salem area or outside Oregon .................. 503-945-8617 Toll-free from an Oregon prefix ............ 1-800-886-7204

Americans with Disabilities Act (ADA): Call one of the help numbers above for information in alternative formats.



150-104-007 (Rev. 07-14) Form OR706-A, page 1 of 2

This form should be used to report and pay additional estate transfer tax imposed by Oregon Revised Statute (ORS) 118.140 for an early disposition or an early cessation of use of qualified natural resource property or commercial fishing property. You’ll need your copy of the original Schedule NRC to complete this form. Note: For recapture of the natural resource credit taken on Form IT-1, Oregon Inheritance Tax Return (for deaths prior to January 1, 2012), use Form IT-1A, Oregon Additional Inheritance Tax.

Property owner’s SSN or FEINName of property owner

Part 1

Extension of time to file is attached. Extension of time to pay is attached.

Decedent’s Social Security numberDecedent’s date of deathName of decedent

Property owner’s current mailing address Property owner’s phone

Part 2—Description of property (see instructions)

A. Property descriptionB. Date of disposition

C. Value of property listed on column A (see Schedule NRC, column D)

D. Proceeds from sale / exchange / conversion

E. Proceeds not reinvested

F. Disqualified percentage (E ÷ D)

G. Disqualified property (F x C)

Total

Part 3—Property replacement & involuntary conversion of property (see instructions)

A. Date of acquisition B. Property description of newly acquired property and the property that was replaced

Oregon Additional Estate Transfer Tax Return

For office use onlyDate received

Payment

BIN

•

•

•

Form

OR706-A(147)

•



150-104-007 (Rev. 07-14) Form OR706-A, page 2 of 2

Part 4—Additional estate transfer tax computation (references to Schedule NRC are for use with Form OR706)

1. Enter total from Schedule NRC, part 2, column D ..........................................................................................1

2. Enter total from Form OR706-A, part 2, column G .........................................................................................2

3. Subtract line 2 from line 1 ..............................................................................................................................3

4. Adjusted gross estate (Schedule NRC, part 5, line 3).....................................................................................4

5. Divide line 3 by line 4 (round to two decimal points) ......................................................................................5

6. Tax payable (Schedule NRC, part 5, line 8) ....................................................................................................6

7. Multiply line 5 by line 6 ..................................................................................................................................7

8. Original NRC credit claimed (Schedule NRC, part 5, line 9) .........................................................................8

9. Subtract line 7 from line 8 .............................................................................................................................9

10. Enter the result of: 60 minus the number of months the property was used as natural resource property ... 10

11. Divide line 10 by 60 (round to two decimal points) .....................................................................................11

12. Multiply line 9 by line 11. This is your additional estate transfer tax (don’t enter more than the amount on line 8) ..............................................................................................12

13. Penalty due (see instructions) .....................................................................................................................13

14. Interest due (see instructions) .....................................................................................................................14

15. Add lines 12 through 14. This is your total due ...........................................................................................15

Social Security numberName of qualifying family member

Address

Part 5—Disposition of property to a decedent’s family member

If you sold or gifted your NRC property to another member of the decedent’s family, complete this section (see instructions). If there is more than one person, attach an additional statement and include all of the information requested here.

Relationship to decedent Phone

Signature of owner

Signature of preparer

X

X

Under penalties of false swearing, I declare that I have examined this return, including accompanying schedules and statements. To the best of my knowledge and belief it is true, correct, and complete. If prepared by a person other than the executor, this declaration is based on all information of which the preparer has any knowledge.

Mail to:

Oregon Department of RevenuePO Box 14110Salem OR 97309-0910

Attach a complete copy of your Schedule NRC and supporting documents.

Date

Name of preparer Title

Phone

Mailing address City State ZIP code

Part 6—Signatures and authorization

Check the box to authorize the following individual(s) to receive and provide confidential tax information relating to this tax return.



EXHIBIT 37A Estate Planning Associate Training Curriculum and Projects

1. Basic Devices 1.1. Durable power of attorney 1.2. Health care directive 1.3. HIPAA authorization 1.4. TOD and POD devices (bank accounts and securities 1.5. Will form 8-simple will 1.6. Will form 9-trusts for children 1.7. Will form 11-credit shelter plus children trusts

1.7.1. Choice of funding formulas 1.8. Corresponding living trusts

1.8.1. Funding living trusts 1.9. Beneficiary designations

1.9.1. Life insurance 1.9.2. Retirement plans and IRAs

1.10. Spreadsheet model 1.11. Death tax apportionment 1.12. Client interview process 1.13. Planning with second marriages

2. Tax Concepts 2.1. EGTRRA credit shelter 2.2. Federal marital deduction 2.3. Oregon inheritance tax-marital deduction 2.4. Gift tax statute of limitations 2.5. 2036 retained interests 2.6. Non-citizen spouse



2.7. Generation skipping tax 2.8. Basis step up

3. Sophisticated Trust Planning 3.1. QTIP marital share with generation skipping (form 12) 3.2. Irrevocable life insurance trust (ILIT) 3.3. Generation skipping trusts and gifts 3.4. Spousal annual exclusion trust (SLET) 3.5. Qualified personal residence trust (QPRT) 3.6. Joint credit shelter trust (with basis step up) 3.7. Charitable remainder trusts (CRT) 3.8. Grantor retained annuity trust (GRAT) 3.9. Inter vivos QTIP for unpropertied spouse (IVQTIP) 3.10. Sale to a grantor trust 3.11. Special needs trusts

4. Other Planning Techniques 4.1. Use of disclaimers (formula) 4.2. LLC discount planning 4.3. Discounting undivided interests 4.4. Ordering and reviewing appraisal reports 4.5. 529 plan 4.6. Asset protection planning 4.7. Roth conversions 4.8. 6166 payment of estate tax 4.9. Graegin loan 4.10. Donor advised charitable fund 4.11. Conservation easements 4.12. Commercial annuities 4.13. Trust reformation 4.14. Endowment fund agreement reformation



4.15. Insolvent estate proceeding

5. General Higher Level Estate Planning Issues 5.1. UTC 5.2. Community property 5.3. Formula gifts and charitable disclaimers 5.4. 754 elections (optional basis adjustment) 5.5. Required minimum distributions from ira 5.6. Principal and income-unitrust rules 5.7. Inter vivos QTIP 5.8. Valuation discounts 5.9. Dynasty trusts 5.10. Changing domicile 5.11. Changing trust situs 5.12. Asset protection planning 5.13. Income taxation of trusts, estates and beneficiaries 5.14. Use of grantor trust 5.15. Net gifts (and net net gifts) 5.16. Will contest involvement

6. Related Project Skills 6.1. LLC organization

6.1.1. Single member LLC 6.1.2. Business LLC 6.1.3. Investment (super) LLC

6.2. Buy-sell agreements 6.3. Statutory deeds 6.4. Promissory note 6.5. Deed of trust 6.6. Premarital agreements 6.7. S-corporation issues



6.8. Corporate/LLC minutes 6.9. Probate administration 6.10. Prepare 706 estate tax return (also IT-1)

7. Ancillary Projects 7.1. Integrate U.T.C. into forms 7.2. Engagement letters

7.2.1. Probate 7.2.2. Trust administration 7.2.3. Estate planning

7.3. Client questionnaire



EXHIBIT 37B

Estate Planning and Administration Legal Assistant 1. Planning

1.1. Basic will 1.2. Codicils 1.3. Durable power of attorney 1.4. Health care directive 1.5. Basic revocable trust

1.5.1. Special residential trust 1.5.2. Trust certification

1.6. Beneficiary designations 2. Administration

2.1. Survivorship rights 2.1.1. Tenancy by the entireties 2.1.2. Joint tenancy with right of survivorship 2.1.3. Vehicle transfers 2.1.4. TOD 2.1.5. POD 2.1.6. Life insurance 2.1.7. Commercial annuities 2.1.8. IRA 2.1.9. Retirement accounts 2.1.10. PERS 2.1.11. Social Security

2.2. Intestate succession-statutory will 2.3. Marital property rights

2.3.1. Tenancy by the entireties 2.3.2. Community property



2.3.3. Elective share 2.4. Duties of executor-personal representative 2.5. Small estate proceeding 2.6. Full probate

2.6.1. Petition 2.6.2. Set up estate bank account 2.6.3. Apply for EIN 2.6.4. Notice to heirs and devisees 2.6.5. Notice to OHA and OSHS 2.6.6. Creditor notices 2.6.7. Creditor review checklist 2.6.8. Inventory 2.6.9. Annual/final accountings 2.6.10. Affidavit of compliance 2.6.11. Distribution

2.6.11.1. PR deed 2.6.11.2. Motor vehicles 2.6.11.3. Bank and investment accounts

2.6.12. Attorney fee affidavit 2.6.13. Computing PR fee 2.6.14. Prepare and obtain receipts 2.6.15. Closing

2.7. Trust administration 2.7.1. Trust certification 2.7.2. Apply for EIN 2.7.3. Creditor notices 2.7.4. Notices to beneficiaries

2.8. EIN application



3. Estate Tax Returns 3.1. Oregon 706

3.1.1. Oregon marital election 3.1.2. Oregon natural resources election

3.2. Federal 706 4. Guardianships and Conservatorships

4.1. Appointment of guardian/conservator 4.2. Notice to protected person 4.3. Annual reporting to court



EXHIBIT 38

To expand on the admonition of Earl Long, son of Huey Long and governor of the great state of Louisiana: Don’t email anything you can write in a letter. Don't write in a letter anything you can phone. Don't phone anything you can talk in person. Don't talk in person anything you can whisper. Don't whisper anything you can smile. Don't smile anything you can nod. Don't nod anything you can wink.

Elementary and Effective: 30 Great Ideas in 60 Minutes€¦ · Form 17—Qualified Retirement Plan...

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Transcript of Elementary and Effective: 30 Great Ideas in 60 Minutes€¦ · Form 17—Qualified Retirement Plan...