It comes down to this

1
It comes down to this

• The success you have enjoyed has created a
  problem that will someday become very real for
  those you care about.

2
Succession Planning

• Taxes
• Federal Estate Tax
• Oregon Inheritance Tax

• Ownership Structures
• Sole Proprietor
• General Partnership
• C Corporations
• S Corporations
• Family Limited Partnerships
• Limited Liability Company

3
FEDERAL ESTATE TAX

• This is a tax in flux it will almost certainly
  remain, but not in its current form.

4
FEDERAL ESTATE TAX

• All assets, minus liabilities i.e. net worth.
• Included
• Real property
• Personal property cattle, equipment, cars, etc.
• Life insurance personally owned (death benefits)
• Anything else with any incidence of ownership

5
FEDERAL ESTATE TAX(Current Law)

• In 2008 the first 2 million of assets/person is
  exempt maximum tax rate is 45.
• 2009 - 3.5 million
• 2010 - 0 tax and no step up in basis
• 2011 and after - 1 million (top tax rate of 55)
• Probable legislation in 2009 ultimate exemption
  3-5 million.

6
FEDERAL ESTATE TAX

• Excluded from tax
• Unlimited marital deduction
• 2 million exemption per individual
• 4 million per couple
• The exemption is wasted at first death if the
  estate is not properly structured.

7
LITTLE OR NO PLANNING All to Spouse
TAXABLE ESTATE
100 - No Tax (Marital Deduction)
SURVIVING SPOUSE
Remainder of estate taxed up to 45
2 Million No Tax
HEIRS
8
BASIC PLANNING Bypass Trust
TAXABLE ESTATE
No tax (Marital Deduction)
2 Million No Tax
Surviving Spouse
Bypass Trust
Income
2 Million No Tax
Remainder of Estate taxed up to 45
No tax
Heirs
9
FEDERAL ESTATE TAX

• Gift tax
• Gift tax exemption is limited to 1 million.
• Annual gift exclusion
• 12,000/donee
• No limit on number of recipients
• Husband and wife can join in split gift -
  24,000/donee

10
OREGON INHERITANCE TAX

• Decoupled from the Federal Estate Tax.
• Amounts over 1 million subject to tax.
• 7,500,000 exclusion for natural resource
  property 2007 legislation
• Oregon tax return may be required when Federal
  isnt.

11
OWNERSHIP STRUCTURES

• Sole Proprietor
• General Partnership
• C Corporations
• S Corporations
• Family Limited Partnerships
• Limited Liability Company

12
SOLE PROPRIETOR
Single owner in a business venture.

• Advantages
• Owner has complete control.
• Simple to establish and operate.

• Disadvantages
• Unlimited personal liability.
• No continuity.
• Not easily transferable.

13
GENERAL PARTNERSHIP
Two or more people combine ownership and business
operations.

• Advantages
• Relatively simple to establish and operate.
• One level of taxation.
• Full control rests with partners.

• Disadvantages
• Each partner fully liable for all business
  activities.
• Not always easily transferable.

14
C CORPORATIONS
A separate entity with shareholders who may or
may not be employees and managers pays income
tax as a separate entity.

• Advantages
• Limited liability
• Continuity
• Easy to transfer ownership
• Tax-free fringe benefits

• Disadvantages
• Complex to establish and manage
• 2 layers of taxation

15
S CORPORATIONS
Similar to C corporations in most respects, but
no taxation at corporate level.

• Advantages
• Limited liability
• Continuity
• Easy to transfer ownership
• No taxation at corporate level

• Disadvantages
• Complex to establish and manage
• Only one class of stock, with limits on who can
  own stock
• Income taxed to shareholders even if not
  distributed

16
FAMILY LIMITED PARTNERSHIP
A form of partnership with a General Partner and
one or more Limited Partners.

• Advantages
• Limited liability for limited partners
• Can transfer ownership without transferring
  control
• Significant valuation discounts

• Disadvantages
• Relatively complex to set up and manage

17
LIMITED LIABILITY COMPANY
A business structure governed by an Operating
Agreement with a high degree of flexibility in
operations, allocation of earnings,
distributions, etc.

• Advantages
• Limited liability
• High degree of Flexibility
• Can choose to be taxed like a partnership or like
  a corporation.
• Can choose centralized management (FLP) or equal
  management (partnership).