the power of independent advice

1. Legacy Tools for Landowners June 2012 the power of independent advice

2. Recent Legislative Changes and Proposals to Federal Estate and Gift Taxation Notes: Circular 230 Compliance Statement Regulations contained in IRS Circular 230 regulate written communications from us concerning tax matters. In compliance with those regulations, we must inform you that • Nothing contained in this document is intended to be used, and nothing may be used or relied upon by any taxpayer for the purpose of avoiding penalties that may be imposed on such taxpayer under the Internal Revenue Code of 1986, as amended; • No written statement in this document may be used by any person or persons to support the promotion, marketing or recommendation of any Federal tax transaction(s) or matter(s) contained herein; and • Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any Federal tax transaction or matter contained in this document. 1 Budget proposal submitted 2/13/2012

3. Legislative changes are temporary - Sunset December 31, 2012 Federal gift, estate and generation skipping transfer (GST) tax exemption increased and tax rate decreased through December Tax exemption amount of $5.12 million cumulative ($10.24 million for married couples). Tax rate of 35% for transfers above exemption amount. Portability of unused exemption at death between spouses (does NOT apply to unused GST exemption amount). Maryland gift tax and the Family Farm Preservation Act of 2012 No gift tax in Maryland New law in Maryland raises estate tax exemption from $1 million to $5 million and lowers tax rate to 5% on excess for Family farms Clawback of benefits if land ceases to be used for farming purposes in 10 years following death Law effective July 1, 2012 Opportunities for wealth transfer in 2012 Economic conditions (reasonable valuations and low interest rates) make lifetime gifting timely. Favorable gift tax environment (both Federal and Maryland) Advanced strategies such as low interest rate loans to support sale transactions and lifetime spousal trusts should be considered to leverage the exemption amount for larger estates. Act in 2012 to avoid Obama plan proposals In addition to higher exemptions and lower tax rates, some leverage techniques may not be available under Obama proposals Valuation discounts would be limited for transfers of an interest in a FLP or FLLC to a family member. Appreciated assets sold to an intentionally defective grantor trust (IDGT) would be included in the grantor’s gross estate for estate tax purposes. Distributions from IDGTs could be considered taxable gifts. Changes in Tax Law Create Opportunities for 2012 Notes: Circular 230 Compliance Statement Regulations contained in IRS Circular 230 regulate written communications from us concerning tax matters. In compliance with those regulations, we must inform you that • Nothing contained in this document is intended to be used, and nothing may be used or relied upon by any taxpayer for the purpose of avoiding penalties that may be imposed on such taxpayer under the Internal Revenue Code of 1986, as amended; • No written statement in this document may be used by any person or persons to support the promotion, marketing or recommendation of any Federal tax transaction(s) or matter(s) contained herein; and • Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any Federal tax transaction or matter contained in this document.

4. What are your Goals? Transfer ownership into the structure that provides near and long term continuity and flexibility Control will be allocated according to the preferences of the family Create a leadership structure and ability of the next generation to carry on Avoid forced sale of part or all of the parcel due to liquidity needed to pay estate taxes Minimize overall taxes (property and estate) What is your current ownership structure? • Most common vehicles: • Limited Liability Company (LLC) or other small business entity • Family trust • If planning a transfer, may need to restructure property first to modernize for current generation and to align goals • May need to restructure debt, if present • Basis will transfer to heirs in a gift transaction Notes: Circular 230 Compliance Statement Regulations contained in IRS Circular 230 regulate written communications from us concerning tax matters. In compliance with those regulations, we must inform you that • Nothing contained in this document is intended to be used, and nothing may be used or relied upon by any taxpayer for the purpose of avoiding penalties that may be imposed on such taxpayer under the Internal Revenue Code of 1986, as amended; • No written statement in this document may be used by any person or persons to support the promotion, marketing or recommendation of any Federal tax transaction(s) or matter(s) contained herein; and • Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any Federal tax transaction or matter contained in this document.

5. Common Tools to Hold Transferred Interests • Limited Liability Company (or similar business vehicle) • Helpful in assigning control through voting shares • Ease in transfer of shares instead of deeds • Preferred over general or limited partnership for strength • Irrevocable Trusts • Perpetual Trusts (Dynasty Trusts) – irrevocable trust that may last in perpetuity • Directed Trustee – trustee who manages single asset or asset class in comingled trust • Grantor Trusts – passes income tax liabilities to the grantor of the trust • Intentionally Defective Grantor Trust – irrevocable trust that is outside of grantor’s estate but income tax liabilities retained by grantor • Low interest rate notes • Used to finance sale transactions • Historically low rates make this attractive, especially if gift tax exemption has been fulfilled • Rate will be locked in at time of transaction (today’s low rates) • Easements • Used effectively to protect large properties from subdivision • Reduces property, income and estate taxes since valuations decline with restrictions • Installment Payment of the Federal Estate Tax Liability • IRC Sec. 6166 allows for installment payments of the estate tax for qualifying small business owners. • Small business asset must represent 35% or more of estate • Payments can be suspended for four years and then paid over 10 years plus interest (total 14 years) • Tax deferred is tax attributable to the small business asset Notes: Circular 230 Compliance Statement Regulations contained in IRS Circular 230 regulate written communications from us concerning tax matters. In compliance with those regulations, we must inform you that • Nothing contained in this document is intended to be used, and nothing may be used or relied upon by any taxpayer for the purpose of avoiding penalties that may be imposed on such taxpayer under the Internal Revenue Code of 1986, as amended; • No written statement in this document may be used by any person or persons to support the promotion, marketing or recommendation of any Federal tax transaction(s) or matter(s) contained herein; and • Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor with respect to any Federal tax transaction or matter contained in this document.