Unit 8, part 2 Estate Planning for Agriculture & Forestry: Basic Documents, Tax Issues, and Conservation Easements

1. An Educational Program of the North Carolina Cooperative Extension Service Adapted for ARE 306 Unit 8, part 2Estate Planning for Agriculture & Forestry: Basic Documents, Tax Issues, and Conservation Easements

2. Basic Documents • Will • Durable power of attorney • Health care power of attorney • Living will • Trusts

3. North Carolina Inheritance Taxes • Repealed effective January 1, 1999 • Tax waivers eliminated • N.C. gift tax not repealed • $100,000 exclusion amount • N.C. Estate Tax • Replaces inheritance tax • N.C. probate tax – up to $6,000

4. N.C. Estate Tax • Deaths after December 31, 2004 • Equal to allowable federal state death tax credit allowable under IRC §2011, as the IRC existed prior to 2002 • May take deduction under IRC §2058 • Inequity: no estate tax due under pre-2002 IRC, then no NC estate tax due

5. What is a Durable Power of Attorney? • A document under the terms of which you give someone the legal authority to act for you if you should become physically or mentally unable to handle your own affairs • The person who acts for you is called your “agent” or “attorney-in-fact” • May continue giving program if language explicit

6. What is a Health Care Power of Attorney? • A document under the terms of which you give someone the legal right to make your health care decisions when you cannot make them yourself • The person who acts for you is called your “health care agent”

7. What is a Living Will? • A statement that you want to die a natural death • You do not want life prolonged by artificial means if there is no reasonable hope of recovery

8. What is a Trust? • A legal arrangement by which a grantor transfers legal title of property to a trustee who holds and manages the property for the benefit of the beneficiaries.

9. Types of Trusts • Living trust • Testamentary trust • Revocable trust • Irrevocable trust

10. Uses for a Living Trust • Provide financial management for the grantor’s benefit • Will substitute that provides privacy for intergeneration farm transfers • Revocable trust • No tax consequences • Can be undone

11. Uses for a Testamentary Trust • Make full use of unified credit • Provide financial support for surviving spouse while preserving farm assets for children • Irrevocable trust (after testator’s death) • Separate taxable entity • Difficult to modify for unforeseen circumstances

12. Advantages of Trusts • Flexibility • Control • Solutions to difficult family and financial problems • Potential tax benefits (full use of unified credit)

13. Disadvantages of Trusts • Expense • Cost of establishing • Cost of operating • Complexity • Record keeping • Loss of control of assets (irrevocable trusts) • Income tax consequences (irrevocable trusts)

14. Tax Consequences of Irrevocable Trusts • Maximum individual rate applied to income at low (<$10,000) threshold • May avoid tax if all income distributed