January 24, 2007

Webinar

“Estate Planning Do’s and Don'ts”S. James Park, J.D., LL.M.

“Tax Update and Changes for 2007”Mathew N. Sorensen, J.D.

Hosted by Mark J. Kohler, J.D., CPA

www.kkolawyers.comLas Vegas, NV * Beverly Hills, CA * Cedar City, UT

Telephone 435.586.9366 / Facsimile 435.586.9491

© Kyler Kohler & Ostermiller, LLP 2007

Disclaimer- Although the information contained in this Presentation may be extremely useful and helpful, please understand that the presentation of this information does not constitute an attorney-client relationship. Moreover, the information contained in this Presentation is for general guidance only. It is strongly recommended that each individual or entity obtain their own legal advice, particularly applied to their own set of circumstances, facts and specific situation. Kyler Kohler & Ostermiller, LLP is not responsible or liable for any advice that is taken and applied in a situation without direct consultation and representation specific to that individual’s or company’s needs.

INTRODUCTION TO ESTATES PLANNING

“Estate Planning” is NOT a one size fits all strategy. In fact, it can often times be very complex. Our purpose is to summarize certain principles of estate planning to help you gain the basic understanding necessary to make critical decisions affecting you and future generations for years to come.

This guide is intended to provide a broad overview and general guidance for clients with differing financial and personal situations.

IT IS OUR GOAL TO COORDINATE YOUR BUSINESS PLANNING, ASSET PROTECTION AND ESTATE PLANNING

GOALS INTO A SINGLE COMPREHENSIVE PLAN THAT ADDRESSES ALL ASPECTS OF YOUR LIFE.

What is an estate plan?

It is the arrangement by which you provide for your family after your death or disability. The goal of an estate plan is to allow you to choose not only Who gets What when you die, but also How and When. Also, in many circumstances, to help those beneficiaries receive your property in a way which maximizes the benefits to them after considering both tax and non-tax factors.

What happens if you die without a formal estate plan?

If you do not implement your own estate plan, your state will supply one for you through the laws of the intestacy. Rarely will the intestacy laws result in property passing in the manner which you would prefer. Without proper planning, a tax of approximately 50% may be assessed on your estate of it is over the exemption amount.

What documents are used to create an estate plan?

Trust. A trust is an arrangement where one or more persons (the grantor(s)) transfer property to one or more persons (the trustee(s)) to manage for the benefit of one or more persons (the beneficiary). The grantor and the trustee may be the same person who may also be one of the beneficiaries. The contents of the Trust are private and not subject to public inquiry. There are several kinds of trusts:

1. Revocable. Since you may change a revocable trust at any time, it is similar

to a Will. However, you may prefer to place the more significant provisions of your estate plan in a revocable trust because the terms of a revocable trust do not become public at your death, and assets then owned by the revocable trust do not pass through the probate process. A revocable trust is often referred to as a “living trust” or a “loving trust.” If most of your assets have been transferred to the revocable trust, it is called a funded revocable trust.

2. Irrevocable. An irrevocable trust is not subject to change. It is used to make a completed gift when you do not want the donee to have outright ownership. Usually irrevocable trusts are created to save taxes.

3. Testamentary. Unlike revocable and irrevocable trusts which involve a transfer of property during your lifetime, a testamentary trust is created in your Will and this becomes effective only when you die.

What other documents are included in a proper estate plan?

• Pour-Over Will* Name guardians of minor children* Public information

• Living Will

• Affidavit of Trust

• Durable Power of Attorney for Finances and Health Care

• Memorandum of Personal Property

• Location of Important Documents

• Funeral and Burial Instructions

• Final Instructions

TheFamily Trust

(Surviving SpouseRetains Control)

Testamentary Trust•Holds assets in Trust for children until they

are old enough to manage them on their

own.

Distribution Trust

Pour OverWill

Exemption Amount(s):

2006 $2MM

2007 $2MM

2008 $2MM

2009 $3.5MM

2010 $Unlimited

2011 $1MM

Your childrenor their issue

1/3 upon reaching 25 years old1/3 upon reaching 30 years old1/3 upon reaching 35 years old

SINGLE PERSON TRUST or

MARRIED Under the Exemption

This structure, generally referred to as a “No-Split Trust,” consists of a Pour Over Will and an original trust (or “Family Trust”), which houses the trust estate during your life and disposes them according to your wishes upon your death.

This structure does not help to avoid estates taxes, and it is generally not used if you are married and have a gross estate over $4M.

The assets you own are valued at your death, and this value is included in your estate for estate-tax purposes. The Internal Revenue Code provides for an “applicable exclusion,” which is the cumulative amount that can pass free of gift and/or estate tax upon death. ($2M in 2006-2008; $3.5M in 2009; Unlimited in 2010; and $1M in 2011). In addition to the applicable exclusion amount for estate taxes, there is also an lifetime exclusion amount for all gifts made during your life which is currently $1m. These exclusion amounts, in addition to the Marital Deduction are generally at the heart of most estate planning.

Unfortunately, this supports the notion that sometimes marriage is the best tax planning strategy of all.

TheFamily Trust

Survivor’s Trust$ Funded with Sep and Community Property.

(Included in Survivor’s Estate)

OPTIONALMarital Income Trust

(QTIP) – income payableat least annually to

Survivor.

Bypass (Exemption)TrustDecedent’s Separate and

Community Property(Not included in the

Survivor’s Estate)

Distribution Trust

Pour OverWill

Exemption Amount(s):

2006 $2MM

2007 $2MM

2008 $2MM

2009 $3.5MM

2010 $Unlimited

2011 $1MM

Your Childrenor their issue

All assets not specifically disposed ofby a written instrument, or not titled in the name of the trust will go into the Trust.

(Income to Survivor and Principal not to exceed the greater of 5%or $5,000)

Both included in Survivor’s Estate. Taxable to the extent it exceeds Survivor’s Exemption Amount

Typically distributed after the deathof the Surviving Spouse.

1/3 upon reaching 25 years old1/3 upon reaching 30 years old1/3 upon reaching 35 years old

MARRIED TRUST with Estate over the

Exemption

This structure, based on the estimated size of the estate, consists of an original trust (or “Family Trust”), which is split into three separate trusts upon the death of either Grantor-Spouse. These are the Survivor’s Trust, the Bypass Trust, and a Marital Income Trust. This structure was chosen to save transfer taxes by allocating assets into the special irrevocable sub-trusts upon the death of either of you or your spouse.

The assets you own are valued at your death, and this value is included in your estate for estate-tax purposes. The Internal Revenue Code provides for an “applicable exclusion,” which is the cumulative amount that can pass free of gift and/or estate tax upon death. ($2M in 2006-2008; $3.5M in 2009; Unlimited in 2010; and $1M in 2011). In addition to the applicable exclusion amount for estate taxes, there is also an lifetime exclusion amount for all gifts made during your life which is currently $1m. These exclusion amounts, in addition to the Marital Deduction are generally at the heart of most estate planning.

Marital Deduction: Transfers between spouses are entitled to an estate tax deduction. By leaving assets to a surviving spouse, estate taxes can be deferred until the survivor’s death.

The Survivor’s Trust: All assets belonging to the surviving spouse are properly allocated to his/her trust. These include all separately held property and also that spouse’s share of the community property held. This generally comprises the survivor’s estate upon which will be taxable upon his or her eventual passing.

Basic Explanation

The Exemption Trust: A "bypass trust" is used to give benefits to one or more beneficiaries without giving them enough rights of ownership to require taxation of the trust assets in the beneficiaries' estates. For married couples, the use of a bypass trust is generally used to preserve the “applicable exclusion” amount for federal gift and estate taxes. This bypass trust is also utilized to allocate the generation-skipping transfer tax exemption (“GST exemption”). If any amount of these exclusions are not fully utilized in the bypass trust, they can be utilized in a Marital Income or QTIP trust.

Marital Income Trust (QTIP): A “qualified terminable income property” (“QTIP”) trust is a Marital Trust that requires the income from the trust to distributed at least annually ONLY to the surviving spouse during his/her lifetime. This trust may or may not limit the survivor’s power to change the beneficiaries of the trust depending on the intentions of the Grantors. A QTIP trust is the only type of trust that can qualify for the marital deduction and still fully utilize any remaining GST exemption amount of the predeceased spouse, assuming the appropriate election is made.

A QTIP trust does not save or defer any more estate taxes than any other trust that would otherwise qualify for the marital deduction, however as previously discussed, it is useful to fully utilize the remainder of the GST exemption; to reduce the survivor’s power to dissipate the trust and change its distribution; or to shield assets from claims against the surviving spouse. It is most commonly used to ensure that approximately ½ of the estate moves to the primary beneficiaries without it being depleted by the surviving spouse.

Coordinating the Estate and Business Plan

THEJONES FAMILY

REVOCABLE LIVINGTRUST

BypassTrust

SurvivorTrust

ChildrenTrusts

PersonalResidence

XYZEnterprises, Inc.

(S-Corp)

XYZHoldings, LP

(Limited Partnership)

Long TermReal Estate

1%

Rentals

99%

100%

LifeInsurance

Investment Accounts

XYZProperties, LLC)

Long TermReal Estate

100%

1st Death

2nd Death

DO’SDo…1. Contact an Estate Planning Professional to create or update

your Estate Plan;2. Coordinate all of your business and asset protection strategies

with your Estate Plan;3. Transfer your ownership interests in Partnerships, LLCs and

other business entities into your Trust;4. Transfer your Stocks, Bonds and other Investments into your

Trust; 5. Transfer your ownership in your personal residence into your

Trust; 6. Consider utilizing the provisions of your Trust to distribute the

proceeds of your Life Insurance and other Death Benefits; and 7. Educate yourself on the power of the many different trust

structures that are available to you, for example: The Irrevocable Life Insurance Trust; the Qualified Personal Residence Trust; a Charitable Remainder Trust; and many others.

DON’TSDon’t…

1. Die, or let your loved ones die without at least a Will; 2. Think your too young to worry about an Estate Plan;3. Procrastinate planning for your loved ones;4. Plan on the total repeal of the Estate Tax (2011);5. Think your revocable living trust will afford you asset

protection;6. Listen to what “the word on the street is”;7. Transfer your assets to any type of irrevocable trust without

fully understanding the PROS and the CONS; 8. Transfer ALL of your assets into a Family Limited Partnership

as the silver bullet solution; and 9. Think that “one-size fits all.”

“Tax Update and Changes for 2007”

Mathew N. Sorensen, J.D.

Summary of Tax Update and

Changes for 2007

• Major changes to 2007 tax laws were made in the Pension Protection Act of 2006 and the Tax Relief and Health Care Act of 2006.

• Changes to HSA contribution rules

• Long Distance Phone Tax Refund

• State Sales Tax Deduction

• Mortgage Insurance Deduction

• Updated number and 2007 tax tables

• Tax Relief and Health Care Act of 2006 makes generous changes to encourage the use of HSA accounts.

• Major changes to Health Savings Accounts (“HSA”) is the amount that may be contributed. HSA’s allow for deductible contributions, tax free growth, and tax free withdrawal for qualified medical expenses but you must have a high deductible health plan.

• Maximum contributions allowed for partial year eligibility. So, if you have a HDHP you can enroll in December and still put in the full amount.

• Allowed to make a one time transfer from your IRA to your HSA account. Maximum amount you can transfer is limited to the yearly amount that can be contributed to an HSA.

• Allows for a one time roll over from a Flexible Spending Account (“FSA”) or Health Reimbursement Arrangement (“HRA”) to an HSA.

Tax Relief and Health Care Act of 2006

Health Savings Account Changes

Tax Deductible Contribution

Tax Free Growth

Tax Free Withdrawal

• Requirements are that you maintain a high deductible health plan. ($1,050 individual, $2,100 family).

• OLD PROVISION- Amount your could contribute into account used to be the amount of your high deductible health plan or the maximum amount allowed by the IRS ($2,850 single, $5,650 family) whichever is less.

• NEW PROVISION- Amount you can contribute into account now is not limited by the amount of the high deductible health plan and is now the maximum amount allowed by the IRS for all qualifying high deductible health insurance plans.

More Flexibility in Transferring Funds to Health Savings Account

Health Savings Account

Individual Retirement Account

Flexible Spending Account

Health Reimbursement Arrangement

• FSA’s or HRA to HSA- One time transfer per HRA or FSA. Limits on what can be transferred is determined by the value in the account as of September 21, 2006 or the date of the transfer, whichever is less.

• IRA to HSA- One time transfer. Amount that can be transferred is equal to the maximum contribution amount allowed by the IRS. ($2,850 single, $5,650 family)

• Restrictions on Charitable Contributions (need dated bank record or dated receipt). Clothing and Household items must be in good or better condition. No used socks or undergarments.

• Charitable contributions can be made directly from your IRA and never taken into your taxable income. You can always take the IRA money into income and then make your charitable contribution, but your will have a higher AGI. Making a charitable contribution directly out of your IRA keeps your AGI low which helps avoid phase-outs of itemized deductions, personal exemptions, or credits.

• Law made the increased retirement plan contributions and catch up amounts permanent. IRA contribution amount increases to $5,000 in 2008, stays at $4,000 for 2007.

• Conversions to ROTH IRA’s to be changed in 2010.Under current law, an individual is allowed to convert a traditional IRA into a Roth IRA if the taxpayers AGI for the year (not including the income from the converted IRA) is $100,000 or less. Beginning in 2010, the $100,000 AGI limit will be eliminated and anyone will be able to convert a traditional IRA into a Roth IRA. Taxpayers can choose to elect to take the income completely into their 2010 return or include half of the conversion income into 2011 and half into 2012.

Federal Pension Plan Protection Act of 2006

• Auto Expense Update

48.5 cents for business

14 cents for charity

20 cents for medical and moving

• Updated Tax Table for 2007

Updated 2007 Numbers

Miscellaneous Items

• Mortgage Insurance Premium. Itemized deduction allowed for the cost of premiums for mortgage insurance on a personal residence.

• Long Distance Excise Tax Refund. Taxpayers entitled to refund for tax paid from 2003 to 2006. IRS will allows you to claim a refund for the exact amount of tax paid for these years or you can request the standard refund amount ranging from $30-$60 based upon the number of exemptions you claim on your individual income tax return.

• Provision allowing for the deduction of State sales tax in lieu of State and local income taxes. Option is available to all taxpayers, though it will be especially helpful to residents in states without state income tax. There is a worksheet provided by the IRS to calculate the amount of the deduction.

• In 2003, Congress reduced the tax rates on long term capital gains from 10% and 20% to 5% and 15% respectively. These rates were set to expire but congress extended them until 2010 in 2006 legislation. Major rate is the 15% long term capital gains rate which was extended.

• An interesting outcome of the changes in the law is that the rate for taxpayers in low income tax brackets is zero for three years. From 2008 to 2010, taxpayers in the 0-15% tax bracket (maximum income of $63,701 for married couples, including the gain on the asset sold) can sale appreciated assets for no tax. Sale of assets applicable to this provision include real property, stocks and bonds.

Capital Gains Break Extended

for Another 2 Years

Tax Bracket

0-15%

25% and up

Capital Gains Rate

2006-2007 2008-2010

5%

15%

0%

15%