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Presented by: Robert S. Lipsey Peter J. May

Planning Opportunities for Income Tax & Business Transition or Second Star to the Right & Straight on Till Morning. Presented by: Robert S. Lipsey Peter J. May. 2011 Are these the changes you expected?. The uncertainty continues as we get closer to 2013 it will get worse…or better?.

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Presented by: Robert S. Lipsey Peter J. May

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  1. Planning Opportunities for Income Tax & Business TransitionorSecond Star to the Right & Straight on Till Morning Presented by: Robert S. Lipsey Peter J. May FPA Presentation - 3-16-2011

  2. 2011Are these the changes you expected? The uncertainty continues as we get closer to 2013 it will get worse…or better?

  3. What we will cover today • Key changes in the new law • Opportunities – what has really changed? • Opportunities – 2011 & 2012 & Beyond • Business Planning Concepts • Questions FPA Presentation - 3-16-2011

  4. Disclaimer • This communication is not a covered opinion as defined by Circular 230 and is limited to the Federal tax issues addressed herein. Additional issues may exist that affect the Federal tax treatment of the transaction. The communication was not intended or written to be used, and cannot be used, or relied on, by the taxpayer, to avoid Federal tax penalties. • This Presentation is for educational use only. • Does not constitute a complete analysis of all issues on this subject. • Not intended for use for a specific client. FPA Presentation - 3-16-2011

  5. Income Tax Changes – Let’s Review FPA Presentation - 3-16-2011

  6. Tax Changes – Comments • An extension of 2010 rates • Tax-bracket thresholds increased slightly • Standard deductions up slightly FPA Presentation - 3-16-2011

  7. Tax Changes – Additional Details • Itemized deduction - state/local sales tax [2011] • Repeal of personal exemption phase-out [2012] • Repeal of itemized deduction limitation [2012] • Increase of AMT exemption amounts • Extension of 15% LTCG [2012] • Extension of 15% Qualified Dividends [2012] • Payroll Taxes – 2% reduction - employees & self-employed [2011] FPA Presentation - 3-16-2011

  8. Tax Changes – Additional Details • Bonus Depreciation • Section 179 Expensing • Grant Programs – Wind, Solar, Renewables • Tax Credits - Railroad Track Maintenance • Enhanced Deductions for select donations FPA Presentation - 3-16-2011

  9. Quick Review of Estate & Gift Tax Changes • $5 million estate tax exemption • $5 million gift tax exemption • $5 million GST tax exemption • Portability for Estate & Gift tax but not GST Tax • Unless renewed portability & the amount of the exemption is only for 2011 & 2012 FPA Presentation - 3-16-2011

  10. Current Proposals for Additional Changes • FY 2012 Budget Proposal • ….. “except for higher income taxpayers” • Itemized deduction limitation • Personal exemption phase out • Itemized deduction cap of 28% • and the list goes on and on….. FPA Presentation - 3-16-2011

  11. Current Changes….Yet to Arrive • Medicare taxes • 0.9% additional tax [2012] • 3.8% qualified unearned income tax [2012] FPA Presentation - 3-16-2011

  12. Debt is nothing like we have seen in the history of the U.S. (Heritage Foundation) • U.S. is $13 -$14 trillion in debt • States have billions in unfunded liabilities – they are broke! • Obama health care “trillions” • The math doesn’t work • Where will the money come from? FPA Presentation - 3-16-2011

  13. Prediction of the future FPA Presentation - 3-16-2011

  14. Back to the Future • What happens if the estate tax goes to 55% (again!)? • What happens if it reverts to 2009 tax levels? • Is it the tax?….or, • Is it how do I control where my business goes and what happens that is important? FPA Presentation - 3-16-2011

  15. Family Owned Business Issues • Family Relations Concerns • Active vs. Inactive • Competent vs. Incompetent • Skippy FPA Presentation - 3-16-2011

  16. Family Owned Business Issues • Income Concerns Between Family Members • Fair vs. Equal • Value for Job Well Done • Value for Heir / Bloodline FPA Presentation - 3-16-2011

  17. Family Owned Business Issues • Control Concerns • Family Members • Key Employees FPA Presentation - 3-16-2011

  18. Family Owned Business Issues • Transition Concerns • Estate Timing • Recapitalization • Cash Flow “affordability” FPA Presentation - 3-16-2011

  19. Family Owned Business Issues • Family Relations Concerns • Income Concerns Between Family Members • Control Concerns • Transition Concerns FPA Presentation - 3-16-2011

  20. Transferring a Business(some methods) • Revenue Neutral Sales FPA Presentation - 3-16-2011

  21. Transferring a Business(some methods) • Installment Sales FPA Presentation - 3-16-2011

  22. Transferring a Business(some methods) • SCIN’s FPA Presentation - 3-16-2011

  23. Transferring a Business(some methods) • Sales to Grantor Trusts FPA Presentation - 3-16-2011

  24. Transferring a Business(some methods) • GRAT Planning FPA Presentation - 3-16-2011

  25. Transferring a Business(some methods) • Revenue Neutral Sales • Installment Sales • SCIN’s • Sales to Grantor Trusts • GRAT Planning FPA Presentation - 3-16-2011

  26. Comparison for sample individualResults for specific individuals may vary FPA Presentation - 3-16-2011

  27. Transfer Mechanisms @ present value FPA Presentation - 3-16-2011

  28. Does the Act CreateA False Sense of Security? • 2 year window? • Can you give away $5 million? • Is it too soon to act? • Revolving Door Complex? FPA Presentation - 3-16-2011

  29. Valuation Planning Techniques • Book FPA Presentation - 3-16-2011

  30. Valuation Planning Techniques • Adjusted Book FPA Presentation - 3-16-2011

  31. Valuation Planning Techniques • DCF FPA Presentation - 3-16-2011

  32. Valuation Planning Techniques • Capitalization FPA Presentation - 3-16-2011

  33. Valuation Planning Techniques • Comparables FPA Presentation - 3-16-2011

  34. Valuation Planning Techniques • Book • Adjusted Book • DCF • Capitalization • Comparables FPA Presentation - 3-16-2011

  35. Somethings No One Thinks About • Artwork / Collections / TPP • Ability to “unbalance” • Your estate plan • Your current income tax strategy • Life Insurance • Art Funds FPA Presentation - 3-16-2011

  36. Some other questions we have gotten FPA Presentation - 3-16-2011

  37. I don’t know what to do – I don’t have successors for my business. I don’t want to sell now. FPA Presentation - 3-16-2011

  38. Alternative Succession Planning if No Family Succession Plan • Some situations are helped by creating a “synthetic stock plan” • How it works: • Synthetic stock is created for a percentage of the “equity stake” in the company • Synthetic stock is awarded over time; for example 30% equity stake is awarded, at passing they key people need only purchase 70% of the value of the company, hence the “leg up.” FPA Presentation - 3-16-2011

  39. “I’ve done my planning – everything is in a series of LLC’s” FPA Presentation - 3-16-2011

  40. LLC’s(What they don’t do) • Without additional planning an LLC is not a transfer mechanism • An LLC may assist as a control mechanism, but without additional planning it doesn’t completely shift the income stream FPA Presentation - 3-16-2011

  41. My plan is to use an ESOP- I get income tax deductions,raise capital&it is part of my estate transfer plan. FPA Presentation - 3-16-2011

  42. ESOP Issues • Repurchase liability • Control beyond the current family ownership • Valuation may be in conflict with your estate valuation; and cause a higher value and more estate tax FPA Presentation - 3-16-2011

  43. Closing Remarks & Questions • Planning should be considered based on all the facts available • Instead of looking for what is there, • Look for what is not • We have enjoyed the time today FPA Presentation - 3-16-2011

  44. Thank You Robert S. Lipsey bob@lipseylaw.com Peter J. May pjmay@verizon.net FPA Presentation - 3-16-2011

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