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2012

ESTATE &FINANCIALPLANNING

No legal advice is given in this section and none of the information should be so construed. For legal advice, please contact your attorney.


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INDEPENDENT RECORD

FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

• Wills, Trusts & Estate Planning • Probate • Tax Disputes • Business Planning Attorneys at Law J.D. & LL.M in Taxation

406-443-1040 (phone) 888-866-1040 (toll free) 406-443-1041 (fax) www.mbtaxlaw.com (home page) tom@mbtaxlaw.com (e-mail) val@mbtaxlaw.com (e-mail)

Morrison & Balukas Law Firm, PLLC 111 N. Last Chance Gulch, Suite 3B, Helena, MT 59601


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INSIDE 2012 Estate & Financial Planning Guide WHAT WILL HAPPEN TO THE ESTATE TAX.............................3 YOUR ESTATE PLAN ...............................................................4 ARE YOU RETIREMENT READY? ............................................5 10 TIPS TO MANAGE YOUR MONEY ......................................6 MORE REASONS TO OWN LIFE INSURANCE .........................7 GENERATE RETIREMENT MORE EFFICIENTLY .......................8 END-OF-LIFE PLANNING.......................................................10 THINK BEYOND CASH ..........................................................11 BE CAUTIOUS OF CONVENTIONAL WISDOM .......................12 7 SEVEN THINGS TO KNOW BEFORE TACKLING TAXES ......14 5 WAYS YOU CAN BE A PHILANTHROPIST ..........................16 YOUR MONEY: LAST MINUTE TAX TIPS...............................16 PLANNED GIVING ISN’T SEXY..............................................18 ESTATE PLANNING IS NOT JUST TAX PLANNING ................19 Estate Planning is published by the Independent Record a division of Capital City Publishing Group 317 Cruse Avenue, Helena, MT 59601 • (406) 447-4003.

Harlen & Parish, P.C. Attorneys at Law

Thomas K. Harlen Richard L. Parish

Quality estate planning for over 30 years... Wills, Trusts, Powers of Attorney, Living Wills, Wealth Strategies.

www.harlenparish.com

ESTATE AND FINANCIAL PLANNING

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What will happen to the estate tax in 2013 and beyond? VALERIA A. BALUKAS MORRISON & BALUKAS LAW FIRM, PLLC

REGULAR READERS OF THIS ESTATE PLANNING insert will recognize these familiar words – no one knows what the future of the estate tax is going to be. The 2010 Tax Relief Act created a $5 million per person exemption amount and a flat tax rate of 35 percent on amounts exceeding $5 million. However, this provision is only in effect for 2011 and 2012. Unless Congress passes new laws on January 1, 2013, the per person exemption amount will drop to $1 million and the top estate tax rate will be 55 percent. If this happens, many more Montanans will have to worry about how the estate tax affects them.

What are Congress’s estate tax options? As in previous years, and in this critical presidential election year, Congress has shown no real signs of reaching a consensus to enact permanent estate tax laws. Presumably Congress could extend the 2010 Tax Relief Act and keep the exemption amount at $5 million with the 35 percent tax rate. Many commentators think that it is more likely that Congress will reach a compromise resembling the 2009 law, providing for a $3.5 million exemption with a 45 percent tax rate. Some hopeful commentators speculate that a Republican controlled Congress could completely repeal the estate tax. I personally would not be terribly surprised if Congress did something completely different just to keep us all guessing.

Why does this matter?

Ada J. Harlen, retired

443-0360

FEBRUARY 26, 2012

36 West 6th Avenue Penwell Building Helena, Montana

All of this uncertainty matters because it makes it difficult for estate planners to provide their clients with long-range planning advice. No one knows exactly when they are going to die, and therefore a good estate plan addresses both present concerns and future developments. It is cumbersome, not to mention expensive, to revise, and in some case completely redo, every client’s estate plan every year to reflect the current year’s tax laws. However, in many situations it has become necessary to do so. For example, where there is a family business or operating ranch and multiple generations work for the business, proper planning must be done to ensure that the business can continue to operate after the death of various family members.

What can you do? You should take the first step and make sure you have a current estate CONTINUED ON PAGE 6 >>


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FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

Your estate plan An often quoted “curse” goes: “May you live in interesting times.” MIKE MUNCK, EXECUTIVE VICE PRESIDENT ST. PETER’S HOSPITAL FOUNDATION

CERTAINLY today’s world qualifies. Wars and rebellions, financial lurches and near meltdowns on a regular basis, in all different quarters of the globe. Who knows what tomorrow, let alone next week or year, will bring. How can you make plans at a time like this? Here’s how.You consider the plan that is best suited to the times… a plan that you can easily change or amend, no matter what the future holds. Consider the personal Will.

Finding certainty in uncertain times

A personal Will gives you maximum flexibility. A personal Will can be amended or changed, at any time, and with minimal trouble or expense. A personal Will is also the first step in any estate plan. Whether you are just starting or reviewing your estate plans, let’s do it right. It’s one thing to have a Will; it’s another to have a Will that works well. In fact, there are some cases where it is better not to have one at all, than to have one that fails to achieve your wishes.

There are several ways you can goof up your will. Here are four of the more common ones to avoid: Do it yourself. State law says what is and isn’t legal in drafting and signing

a Will. A universal form obtained from a store or website, or a homemade Will based on hearsay advice is risky, to say the least. A good estate-planning attorney can ask the right questions to help you make sure you are covering all the bases. It is well worth the cost to get professional help in making your Will. Provide incorrect or unclear information. If you are making a bequest, to an heir or charity, it is important to use the full legal name of the recipient. Be as clear as you can in describing what you are giving. If a charitable bequest, spell out how the gift is to be used or if it is unrestricted. Hide your Will. What’s the use of having a valid Will, that expresses your wishes exactly – only to have it so well hidden no one can find it at your

death? In addition to storing your Will in a safe place, make sure you tell the appropriate people. Overlook other transfer arrangements. A Will is only one way assets transfer at death. If your Will is not coordinated with other transfer arrangements (e.g. life insurance, annuity contracts, bank or brokerage accounts) enormous problems may result. Times may be uncertain.Your estate planning doesn’t need to be. Decide what’s important.Then call your good, always flexible friend… Will.

Mike Munck has served as Executive Vice President of St. Peter’s Hospital Foundation since 1991.

From our earliest days in 1883...

Through the horse and buggy...

...into the era of modern medicine.

Our mission of health and healing remains.

Please remember St. Peter’s Hospital Foundation in your estate plans

2475 Broadway, Helena, MT 59601 (406) 444-2370 www.stpetes.org


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FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

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Are you retirement ready? What you need to consider ARA CONTENT

THE IDEA OF RETIREMENT is both exciting and daunting. After leaving the workforce, you’ll have the opportunity to pursue dreams that you have envisioned for your retirement. But you’ll need to have the financial wherewithal to fund those dreams and cover your day-to-day living expenses. It is clear from everything we read in the news that many Americans likely aren’t saving enough. While many people might rely on Social Security to help cover their costs during retirement, it may not be enough and those who want to live a full life in their later years should focus now on saving more. This fact is underscored by a LinkedIn Poll that Prudential Retirement began on September 9 about Americans’ perceptions of workplace retirement plans. There were more than 300,000 impressions and more than 1,000 individuals voted. Of those voters, more than 50 percent were “very interested” in a guaranteed retirement income feature. Moreover, 23 percent were “somewhat interested.” Whether you’re in your 20s or your 50s, retirement should be on your mind. Regardless of your age, now is the time to start planning so that you can make sure you are able to save enough to live the retirement you envision. Spend some time considering these points and consult with a financial advisor who can help you lay out a plan to maximize your savings. Some options to consider include:

WORKPLACE RETIREMENT OPPORTUNITIES If you’re fortunate enough to have access to a workplace retirement plan, take advantage of it - they are one of the best ways to save for retirement. Market volatility will always impact the stock market. However, in an effort to make workplace retirement plans more user-friendly and better help participants plan for a more secure retirement, Prudential Retirement is leading a push to introduce features into defined contribution plans that provide guaranteed retirement income. You can learn more at www.prudential. com.

DIVERSIFICATION Commonly known as,“don’t put all your eggs in one basket,” diversification is simply choosing a variety of investments that react differently to market conditions. Choosing a variety of them can help you manage risk since positive performance in one option may help offset poor performance in another option. Diversification should be a central theme of your retirement funding plan. However, keep in mind that application of asset allocation and diversification concepts does not assure a profit or protect against loss in a declining market. It is possible to lose money by investing in securities. If you feel unsure of what you should be doing, what your options are or need help understanding just what you need for retirement, a financial advisor can help you lay out a more clearly defined path toward your goals.

SEEK PROTECTION “Expect the unexpected is a classic adage that has endured for good reason. The plans you make might not follow the path your life actually takes, so it’s a good idea to protect yourself in case the unexpected should happen. One of the best ways to do that is to make sure that you have an adequate amount of insurance to protect your income and your assets. In addition to a smart retirement planning strategy, life, health, disability and long-term care insurance can help protect both you and your loved ones.

BUDGET AND CUT BACK ON EXCESSIVE SPENDING. While we all want to live a full life every day, the decisions you make now could have a negative or positive impact on your future – it all comes down to the choices you make. Of course there are unavoidable costs that come along with day-to-day living, but the more discretionary spending you do now, the more money you’ll have later.Think about cutting back on extravagances and extras – without eliminating them completely – in a way that will allow you to invest more money in your future retirement.

Death and Taxes... are two things said to be certain in life. Ohio National helps protect families and businesses from the impacts of both.

To learn how we can help you, call us today.

Call Meg or Kori 406.457.1243 1003 11th Avenue, Suite A | Helena, MT 59601 www.jacobydeeinsurance.com The Ohio National Life Insurance Company Ohio National Life Assurance Corporation Issuers not licensed to conduct business and products not distributed in AK, HI and NY.


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ESTATE AND FINANCIAL PLANNING

Ten tips to manage your money through unexpected life changes ARA CONTENT

ONE OF THE MANY BENEFITS of marriage is having a partner to share in the day-to-day tasks. One person might handle the laundry while the other takes over yard work. But, when it comes to money management, while you may end up delegating most of the responsibility to one person, it’s in every couple’s best interest to be mutually involved in the family finances. Life is full of uncertainty and change, and it’s possible, even likely, that you will be responsible for your own finances at some point. For many, the financial impact of significant life changes, from the good, like marriage and children, to the not-sogood, like death and divorce, is often a costly afterthought. While divorce and death are difficult possibilities to accept or anticipate, they are changes that come with many financial implications. This holds especially

true for women who typically outlive their male counterparts. According to the National Association of State Treasurers Foundation, 90 percent of women will be solely responsible for their finances at some point in their lives. However, despite the likelihood of eventually living this new financial reality, less than half of women (45 percent) and men (41 percent) have a contingency plan in place should something happen, according to research by TD Ameritrade, Inc. “It’s not always the easiest conversation to discuss with your partner because it forces you to think about worst-case scenarios,” says Lee McAdoo, director of Women's Initiatives at TD Ameritrade.“But you’ll find that discussing your family finances and setting goals together can also give you peace of mind.” Life transitions are often times unexpected and highly emotional, which can make decision making more difficult. For those reasons, it’s best to plan ahead.

Here are 10 suggestions to help you make sure you can effectively handle your personal and family finances: 1. Create a detailed household budget. 2. Compile all your financial documents, make copies and store them with your attorney or place them in a safe deposit box that you both can access. 3. Conduct an inventory of marital assets. 4. Determine medical expenses and other annual costs for your family such as activities fees for your children and gym memberships. 5. Review all your debt, including mortgages, student loans, car loans and credit cards. Obtain a current version of your credit report at least once a year. 6. Make sure each person is aware of how you file your tax returns and your tax filing status. 7. Discuss long-term savings plans and goals, including retirement and college savings plans.

ESTATE TAX IN 2012 AND BEYOND CONTINUED >>

plan that reflects your wishes if you were to die in 2012 knowing that the $5 million exemption amount will apply. Next, ask your advisor what will happen to your estate if Congress does not act and the $1 million exemption amount comes into effect. Depending on the response, you may need to revise your existing plan immediately. Third, recognize that while a good estate plan can take advantage of many available tools to lower each client’s exposure to estate tax, without permanent estate tax laws it is critical that you review your existing estate plan at least annually and visit with your advisor to find out if you should make any revisions.

8. Review beneficiary designations in your will and update if necessary. 9. Consider employee benefits for each person. 10. It can be helpful to have an attorney or financial adviser review financial documents and give you advice should you desire it. TD Ameritrade has also launched a website dedicated to helping you navigate your finances during major life changes. More helpful tips and advice can be found at www.tdameritrade.com/life. While involving yourself more in your finances means taking on extra responsibility, it can also help you feel empowered and set your mind at ease as you look to the future.


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FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

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More reasons to own life insurance BY CHRIS HEISEL AND RUSS WOLF

death proceeds of a life insurance policy can be arranged to provide an income stream to a surviving spouse.

FARM BUREAU FINANCIAL SERVICES

ONE THING YOU CAN COUNT ON is that life is unpredictable. And as important as life insurance has been during the accumulation years, it can also be important as you move into retirement.

Supplemental retirement income1 A permanent life insurance policy purchased and funded before retirement can offer income during retirement. By taking funds out of the policy, either through partial withdrawals or policy loans, the policy owner can create an income stream or simply make occasional withdrawals as funds are needed. Additionally, the

Living benefits Most life insurance contracts are eligible to be used for “living benefits.” In the event of a qualifying terminal illness or nursing home stay, a percentage of the death benefit may be used while the insured is still alive. Life insurance can also replace the use of personal savings to pay for long-term care, or as a supplement to quality long-term care insurance.

Grandchildren and college funding1 Life insurance can be earmarked for each grandchild to help pay for college or as a down payment on a first home. Another option is to

purchase individual life insurance policies for your grandchildren, which could also help with college expenses and put them in a better position to get life insurance later on.

Ensuring financial security for you and those you care about most is more important than ever. Life insurance can help provide that security, along with guarantees1 and piece of mind.

Life insurance can fund a charitable gift. You can honor and support a cause or organization by using life insurance to leave a significant contribution. When structured properly, this strategy may also have tax advantages.2

Final expenses You can have the peace of mind that comes from knowing final expenses and taxes are adequately funded. Life insurance pays a death benefit at the time it is needed most.

Russell Wolf

1205 Butte Avenue, #6 Helena, MT

1205 Butte Avenue, #4 Helena, MT

406-449-6330 www.agentchrisheisel.com

406-442-8988 www.fbfs.com

Insurance • Investments

Auto I Home I Life I Business I College I Retirement 1The guarantees expressed are based on the claims-paying ability of Farm Bureau Life Insurance Company. Securities & services offered through FBL Marketing Services, LLC+, 5400 University Ave., West Des Moines, IA 50266, 877/860-2904, Member SIPC. Farm Bureau Life Insurance Company+*/West Des Moines, IA. +Affiliates *Company provider of Farm Bureau Financial Services LI065-L-2 (2-12)

Securities & services offered through FBL Marketing Services, LLC+, 5400 University Ave., West Des Moines, IA 50266, 877/860-2904, Member SIPC. Farm Bureau Life Insurance Company+*/West Des Moines, IA. +Affiliates *Company provider of Farm Bureau Financial Services

We are a Montana law firm specializing in estate planning and closely related areas of law. By focusing our pracce in a parcular area of the law, we are able to offer our clients the experience and experse of professionals who dedicate their careers to providing competent, professional legal advice.

OUR ESTATE PLANNING SERVICES INCLUDE:

Debbie M. Churchill, Attorney at Law

FARM BUREAU FINANCIAL SERVICES

Loans and withdrawals will decrease your death benefit and the cash value available to pay insurance costs. Surrenders may generate an income tax liability and may be subject to a surrender charge. A significant taxable event can occur if a policy lapses with an outstanding loan. Loaned values may be credited at a lower rate than unloaned values. 2 Neither the company nor its agents give tax, accounting or legal advice. Consult your professional adviser in these areas.

SPECIALIZING IN ESTATE PLANNING

Call to learn how we make it simple to help secure your family’s financial future.

Chris Heisel

1

Charitable giving

Peace of mind for life.

Talk to your agent about ways life insurance can help you meet your needs and goals.

• Developing a process for transferring your property from one generaon to another • Creang trusts for estate tax reducon, people in second marriages, leaving property to disabled persons • Naming guardians for minor or disabled children • Coordinang your assets with your estate plan • Updang your estate plan • Planning for handling of medical and financial decision if you become disabled, advanced direcves • Exploring opons for long-term care, including Medicaid eligibility

We serve our clients by providing an ongoing personal relaonship with them over the course of their lives. 2728 Colonial Drive, Suite 202 • Helena, MT 59601 Located in the Mountain West Bank Building on the Corner of Colonial Drive and Broadway Phone 441-5401 • Fax 441-5402 • www.churchilllawoffice.com Office Hours: 8am–5pm, Monday–Friday


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FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

Generate retirement income more efficiently NEW YORK LIFE INSURANCE COMPANY

RETIRING AT LAST. You have earned it by every measure. But now, you face an important transition in your personal financial plan. You have finished accumulating retirement assets and are now beginning to distribute them as income to support your retirement lifestyle. The choices you make now will certainly impact your long-term financial situation.

PRESERVING YOUR ASSETS Building a systematic withdrawal plan around a sustainable withdrawal rate is a smart effort for making

Our payout rates are:

your money last, but it may not be enough. Assume you have a retirement portfolio worth $1 million. Initially, annual withdrawals of 5% ($50,000) seem conservative. You may be surprised to learn however, that at that rate there is only a 90% chance your money will last just 20 years.1 In other words, one in ten people following this seemingly conservative withdrawal strategy could potentially outlive their retirement nest egg later in life. In addition to careful consideration of withdrawal rates, retirees must be aware of the significant risk market volatility poses. Erratic swings in equity-based investments can decimate portfolio values without

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New York life Insurance Company

Laurence (Larry) Petty, Financial Services Professional 4125 Red Fox Dr., Helena 442-5345

Based on life-only annuity income, male annuitant with $100,000. Payout amounts for female applicants will be different. In the states of MA and MT, payout amounts do not differentiate male and female life expectancies. For other income plans and premiums less than $100,000, the payout rates will be lower. Payouts are subject to change and exclude premium state taxes. Oregon policy number is 203-169.

warning seriously threatening potential future income since percentage-based withdrawals shrink as total assets are eroded. Holding onto what you have - asset preservation - is a top priority for retirees. Though you may not know how long you’ll live, you do know that running out of money is not a scenario you hope to experience. If only there were guarantees ... The good news is: there are.

GET GUARANTEED LIFE-LONG INCOME A Lifetime Income Annuity2 is a financial product that does, in fact, guarantee life-long income. To illustrate, imagine that same hypothetical million-dollar portfolio. From it, you could use $730,6503 to purchase a Lifetime Income Annuity, which will provide the $50,000 per year of income you had planned to live on. But, this $50k is now guaranteed for as long as you live, regardless of market performance. No more worrying about outliving your savings. Plus, you would still have $269,350 left in your portfolio to access as you wish, making the

Lifetime Income Annuity significantly more efficient than a simple withdrawal strategy. In case of premature death, the Lifetime Income Annuity has a Cash Refund option, which returns to beneficiaries the difference between the initial premium and whatever has been already paid out. If inflation is a concern, an Annual Increase Option4 can be added to the annuity contract at purchase -- initial annual payments would start off smaller, but increase each year between 1 - 5% according to the owner’s preference. Over time, the total annually adjusted payouts would potentially provide more income than their unadjusted counterparts.

This educational third-party article is being provided as a courtesy by Laurence (Larry) Petty. For additional information on the information or topic(s) discussed, please contact Laurence (Larry) Petty at 406-442-5345. Larry Petty, New York Life Insurance Company.

1 Source: Internal New York Life Analysis Systematic withdrawal plan withdrawal rates, and associated portfolio duration, based on hypothetical portfolio allocation:-50% equities, 50% bonds -125 basis point annual fund management expense. Withdrawals increase 3% per year. Systematic withdrawal approach based on 5 simulations of 1,000 scenarios each of correlated equity and bond returns using an economic scenario generator: Correlations estimated using historical monthly S&P 500 Index and Lehman U.S. Aggregate Index returns over the past 20 years. Equity and bond index returns are assumed to be normally distributed. The model is intended to be an indicator of potential returns at various confidence levels and is not designed to be a forecast of future investment performance. 2 New York Life’s Guaranteed Lifetime Income products are issued by New York Life Insurance and Annuity Corporation, a wholly owned subsidiary of New York Life Insurance Company. Guarantee is based on the claims paying ability of the issuer. 3 New York Life $730,650 income annuity for Female, 75 years-old, Single Life with Cash Refund payout option, with 3% COLA, pays $50,000 before-taxes the first year. New York Life income annuity illustration run on 6/16/09. In general, income annuities have less liquidity than investment portfolios. Guarantee is based on the claims paying ability of the issuer. 4

Policy owner must be at least age 59 1/2 at the time of the first payment.


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End-of-life planning MARC G. BUYSKE, LL.M. DONEY CROWLEY PAYNE BLOOMQUIST, P.C.

YOU HAVE DISCUSSED your property estate plan with your attorney and your accountant. You have discussed the plan with your family. You have signed the will or trust documents and the financial power of attorney to put the plan in place. So what is next? Perhaps you should consider a “health care directive” and/or a “provider order for life sustaining treatment” or POLST. Recent court decisions regarding controversial end-of-life treatment issues, if nothing else, have increased awareness of the need for planning

your end-of-life treatment and decision making. An Advance Health Care Directive, a POLST, or a similar document can be of great assistance to your family, your doctors, and most importantly, to assuring that your wishes are effectively carried out. . A health care directive is a document that gives your direction to health care providers concerning your medical care, access to your medical records, and the care you wish to receive in the event of a terminal illness. The health care directive, however, is not an actual medical order. The health care directive can designate a family member or trusted friend to make such decisions if you are physically or mentally unable to do so, and

DONEY CROWLEY PAYNE BLOOMQUIST P.C. Providing Estate Planning and Probate Services Planning tools for clients: Wills and Trusts Gifts Living Wills Powers of Attorney Advance Health Care Directives Marc G. Buyske, LL.M.

Frank C. Crowley, M.S.

Diamond Block Building, Suite 200 44 West 6th Avenue • P.O. Box 1185 • Helena, MT 59624-1185

(406) 443-2211 email: fcrowley@doneylaw.com • www.doneylaw.com

designate how your inability to make such decisions will be determined. Given the increasingly strict limitations on the release of health care information, be sure that your health care directive has explicit releases and authorizations for your agent to review and copy your health care information. The directive should also authorize and direct any health care provider or insurer to release information regarding your health care, medical records, and insurance coverage, including copies of that information, to your agent and to any other person or party designated by your agent. Your releases and authorizations should state that your agent’s authority constitutes a waiver of the protections granted you under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended, as well as under Montana’s Uniform Health Care Information Act, MCA Title 50, Chapter 16. A POLST differs from a health care directive because the POLST is an actual medical order to any health care provider stating what treatment you wish to receive in the event of a terminal illness. The POLST is completed on a form available on the Montana POLST website, www.polst.mt.gov. The POLST is signed by you and your

physician, physician’s assistant, or advanced practice registered nurse. Both of these documents should be provided to your health care provider and to the hospital you most often frequent, and the POLST made a part of your medical records. You should keep the original of the health care directive and the POLST (on its terra green paper) in a prominent and easily accessible place in your home. You should advise your family of the existence and location of each of these documents. The discussion of health care treatment, especially end-of-life care and treatment, with family members will be difficult, but it is a discussion that is a necessary part of your estate planning process. More information regarding health care directives and POLSTs can be found at the Montana State University Extension MontGuide website, www.msuextension.org.


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Think beyond cash You can leave stocks, real estate, insurance policies and personal property to charitable organizations. DAVID SMITH, CEO HELENA FAMILY YMCA

I WAS IN WASHINGTON DC recently meeting with our congressional offices regarding the proposed capping of the charitable contribution deduction. In all the discussions, the focus has been on the people, businesses and foundations that are making the gift. The chatter is about the benefit to the giver. But the real focus needs to be on the organization, or more specifically, the people that the organizations serve.

When people are hurting, community projects need assistance, or youth need after school programs, you help. Charitable gifts touch those in need today. The charitable organizations you support also touch the future – and the best part is that you can help right here in your local community. Many organizations, such as the YMCA have an international reach. But through bequeaths to local organizations, you can create your local vision for a better world long after your lifetime. We rely on charitable organizations and they rely on us. While many

charities receive some support from government agencies, 80 percent of their funding comes from individuals – people like you who give generously throughout their lives. In practice, non-profit organizations provide the services that otherwise would fall to the responsibility of government. Part of that generosity can be through a legacy gift. Whether you think of yourself as rich or poor, or somewhere in between, your gift can make a difference. Some people think they must choose between leaving a gift to their family or their favorite charity – however, you can leave money to your family and to your favorite charity. Some charitable gifts may actually save your family money by decreasing inheritance taxes. Helena has many worthwhile organizations. If you’re not associated with one but still want to make a lasting gift, you can give to organizations such as United Way, the Montana Community Foundation, or the Lewis & Clark County Community Foundation. Those organizations

review requests from other non-profit organizations, and handle charitable gifts from individuals and businesses. Here are a few things to consider before making a legacy gift: Check out their mission statement – do they support the causes you believe in? Are they truly a non-profit organization? They should be able to provide you with an IRS “letter of determination” proving they are a 501(C)(3) corporation. You may ask to see the organization’s 990. This is the equivalent of a tax return. Ask how much of the donations are used for the actual purpose stated. The Better Business Bureau (BBB) recommends the charity should spend at least 65 percent of total expenses on program service activities and spend no more than 35% of related contributions on fund raising expenses.

You can start helping today by making sure you have an up-to-date will (or living trust) that reflects your charitable objectives. Think beyond cash–you can leave stocks, real estate, insurance policies and personal property to charitable organizations. And finally, go visit with the local CEO or board members to hear the stories about what the organizations are doing. These are your friends and neighbors, working side by side, making a difference in our community.


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ESTATE AND FINANCIAL PLANNING

Be cautious of conventional wisdom during unconventional times SEAN STURGES, SENIOR VICE PRESIDENT, DIRECTOR OF FINANCIAL PLANNING D.A. DAVIDSON & CO.

TAKING THAT TRIP you always dreamed about, volunteering more in your community, or maybe more time on the golf course. Retirement means something different to everyone. One thing that it almost always means, though, is that we will no longer receive the regular paycheck to which we have become accustomed. Instead, after receiving our figurative, or in some cases literal,“gold watch,” we will need to rely on our accumulated savings to provide for a large part, if not all, of our needs and wants.

Frequently, this can be a cause for anxiety, and understandably so. Gyrations in the stock market and gloomy economic news have dominated recent memory. For many, the result is a reinforcement of the conventional wisdom that stocks are risky and bonds are safe, and that we should therefore invest more heavily in bonds during retirement. This statement is not completely incorrect, but it is indeed incomplete. The distinction hinges on how we define risk. Most often, we employ a very narrow definition of risk when in investments, with volatility considered the major component. The more volatile something is, the riskier it is. As we have seen over the history of the stock market, and more acutely, the last five

years or so, stocks are generally more volatile than bonds. But to summarily state that they are riskier, and that to avoid risk we should invest in bonds, is shortsighted. To understand this, we must more fully explore the concept of risk. Volatility is undeniably a component of risk. But of equal importance to retirees are purchasing power, interest rate and credit risk, all of which have a tendency to creep into our portfolios through bond exposure, especially during periods of low interest rates (and we are mired in a period of historically low interest rates). Using an example, let’s assume a retiree with a 30-year time horizon who needs $25,000 from their portfolio per year to meet their spending needs. This investor has had the good fortune

to accumulate $500,000 of savings. If we ignore taxes (and we can do that because this is hypothetical), our retiree would need to withdraw 5% of the initial value of their portfolio to meet their needs. If we were to adhere to the idea that the majority of our risk comes from volatility, and that we should therefore invest mainly in bonds, we may try to meet our 5% target through bond interest income. In today’s environment, it would be very difficult, if not impossible, to do so through investment in U.S. government bonds (as of this writing, the yield on the 30-year Treasury is approximately 3.14%). For the sake of argument, let’s assume we could purchase a 30-year Treasury at a yield of 5%. At the outset,

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we would be fine. We could take our $25,000 per year for the next 30 years with nary a worry about whether our interest check would arrive. Enter purchasing power risk. While we would be able to meet our needs in year one with no concern, our purchasing power in this scenario would slowly erode over time. By year 30, assuming 3% annual inflation, the purchasing power of our $25,000 interest payment would be less than half its original amount. One could argue that, to counter our loss of purchasing power, we could sell some bonds over time, spending principal to make up for our interest income shortfall, because of course, the principal on a U.S. government bond is guaranteed. Ignoring the fact that by selling bonds we would reduce our future income stream, this inter-

pretation of the principal guarantee on a U.S. government bond is patently incorrect. While the return of our principal at the end of our bonds’ 30-year term may be guaranteed, if we are to sell them prior to that time, there is the potential that we could lose principal. Enter interest rate risk. While the details of the math can be complicated, generally speaking, bond prices fall when interest rates rise, and vice versa. Given that we are in a historically low interest rate environment, there is a distinct possibility that interest rates will rise in the future, thereby depressing the prices of bonds purchased today. The worst impact will be felt by those who are forced to sell bonds prior to maturity. Therefore, while the yields may be tempting, it is prudent to be wary of purchasing bonds today

Helping customers plan for their future since 1970.

FEBRUARY 26, 2012

with a long wait before maturity. Enter the next idea for meeting our needs: bonds with a lower credit quality than Treasuries. While corporate and even high-yield bonds can be an important part of a diversified portfolio, it is not uncommon to see retirees who place all of their eggs in this basket because they are focused on making the current yield of their portfolio equal or exceed their current spending need. I don’t think we need to detail all the risks inherent in this strategy, except to say that the higher yields generally come with lower credit quality (and thus higher credit, or default, risk). So where does this leave us? This is not intended to be a treatise against bond investment during retirement, nor is it meant to advocate for invest-

ESTATE AND FINANCIAL PLANNING

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ing in stocks. Rather it is simply a caution against relying too much on conventional wisdom about the relative risk of stocks and bonds, and an encouragement to more fully consider all the risks associated with investing in retirement. Most likely, it will be a combination of stocks and bonds that help you meet your goals, and it is something that you will need to diligently manage throughout retirement. This is something that your financial consultant is well-equipped to assist you with. I encourage you to visit with your financial professional for advice specific to you. Source: U.S. Treasury.

JACKSON, MURDO & GRANT, P.C. Thad Adkins John H. Grant David L. Jackson Robert M. Murdo Scott M. Svee

For over 40 years we have taken great pride in helping our customers plan for their future. Whether you are just getting started or preparing to retire, we can help you chose the right products and services to achieve your financial goals.

First Security Bank of Helena Visit us on the web at www.fsb-hln.com

Jackson, Murdo & Grant, P.C. was established in 1967. The firm serves a broad range of individual and corporate clients and practices in a wide variety of areas of law, including administrative, banking, business, collections, contracts, estate planning and probate, employment, civil litigation, land use and planning, liquor and gambling, real estate and securities law. 203 N. Ewing Street • Helena, MT 59601 • (406) 442-1300 • www.jmgm.com


14 INDEPENDENT RECORD

FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

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Seven things to know before tackling your 2011 tax return ARA CONTENT

INDIVIDUALS AND BUSINESSES spend more than 7 billion hours a year complying with federal tax-filing requirements, according to the Internal Revenue Service. To reduce the amount of time you spend, and maybe how much you owe, follow these seven tips from USAA when preparing your 2011 tax return.

1 Focused on Your Investment Needs: • Disciplined Investing

Customized Investment Management Services Tailored to Your Specific Needs

• Balanced Portfolio Construction • Fiduciary Responsibility • Fee-Only Compensation

Watch that deadline. The tax code is always changing, and the filing deadline is a moving target,

too. This year, it’s April 17. The IRS extended the deadline because April 15 falls on a Sunday and April 16 is Emancipation Day, a holiday in Washington, D.C. If you file for an automatic six-month extension of your tax return, be aware that the extra time only covers the paperwork. The IRS still expects you to pay your tax liability by April 17. If you don’t, you'll be subject to interest and penalties.

2

Get college credit. Scheduled to expire at the end of 2010, the American Opportunity Tax Credit was extended through December 2012 and is worth up to $2,500 per col-

ELHART honored by Thrivent Financial for outstanding performance HELENA, MT FEBRUARY 12, 2012 – Rick D Elhart, FIC, Helena, a Financial Consultant with Thrivent Financial for Lutherans, has qualified for Pinnacle Council for 2011. This is the organization’s highest recognition level for sales and service. Of Thrivent Financial’s nearly 2,300 financial representatives, 97 qualified for this honor. Elhart is with Thrivent Financial’s 525 Regional Financial Office, serving Lutherans and their family members in Helena and surrounding communities. He provides financial guidance and solutions to help clients achieve their financial goals. Elhart was recognized by his peers from across the country at Thrivent Financial’s sales conference in April. Elhart has been with Thrivent Financial for 15 years and has been recognized for his performance 14 times.

Rick Elhart, FIC • 3130 Saddle Dr., Helena, MT • 406-442-6091

1 7 2 8 9 t h Av e n u e Helena • 406.442.2400

Dave Bruck Amy M. Christensen, CTFA Phil Howeth Kerry Neils, CFA

ABOUT THRIVENT FINANCIAL FOR LUTHERANS. Thrivent Financial for Lutherans is a not-for-profi t, Fortune 500 fi nancial services membership organization helping approximately 2.5 million members achieve fi nancial security and give back to their communities. Thrivent Financial and its affi liates offer a broad range of fi nancial products and services including life insurance, annuities, mutual funds, disability income insurance, bank products and more. As a not-for-profi t organization, Thrivent Financial creates and supports national outreach programs and activities that help congregations, schools, charitable organizations and individuals in need. For more information, visit Thrivent.com. Also, you can fi nd us on Facebook and Twitter. Securities and investment advisory services are offered through Thrivent Investment Management Inc., 625 Fourth Ave. S., Minneapolis, MN 55415, 800-847-4836, a FINRA and SIPC member and a wholly owned subsidiary of Thrivent Financial for Lutherans. Thrivent Financial representatives are registered representatives of Thrivent Investment Management Inc. They are also licensed insurance agents of Thrivent Financial. Bank products and trust services are offered through Thrivent Financial Bank®, (Member FDIC, Equal Housing Lender), a wholly owned subsidiary of Thrivent Financial for Lutherans. Insurance, securities, investment advisory services, and trust and investment management accounts are not deposits, are not guaranteed by Thrivent Financial Bank, are not insured by the FDIC or any other federal government agency, and may go down in value.


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lege student. The college tax credit is only available for tuition, fees and course-related books and supplies at an eligible post-secondary educational institution. Room, board and transportation aren’t covered. The full credit of $2,500 is available for those whose adjusted gross income is $80,000 or less if single and $160,000 or less if married filing jointly. The credit is reduced if you earn more. Also, you don't qualify if your adjusted gross income is greater than $90,000 if you’re single or $180,000 if you file a joint return.

3

Get help with your energysaving enhancements. Did you invest in new insulation, a heater, an air conditioner, windows or doors in 2011? If so, you may be eligible for an energy efficiency tax credit valued at 10 percent of the cost, up to a credit of $500 for qualified purchases. This tax credit applies only to an existing home that is your principal residence. New construction and rentals don’t qualify. Bigger projects are worth bigger bucks. If you installed a geothermal heat pump, small wind turbine or solar energy system, you’re eligible for a credit of 30 percent of the cost with no limit. While the 10 percent credit expired Dec. 31, 2011, the larger one will be available for purchases made through December 2016.

FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

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4

Understand a new twist in investment tax reporting. Until recently, the burden of calculating gains and losses on the sale of investments fell on individual taxpayers. That's changing as this responsibility is gradually transferred to financial institutions. If you bought and sold an individual stock - not a mutual fund - in 2011, your institution will calculate the gain or loss and report it to you and the IRS on Form 1099-B. This only applies to the sale of stock shares you purchased after Jan. 1, 2011. You’ll still be responsible for calculating the gains and losses from the sale of shares purchased before then, though your firm may provide some calculations for your information only. As the transition continues, financial institutions have begun calculating gains and losses on the sale of mutual fund shares acquired after Jan. 1, 2012.

5

Hit by a natural disaster? Seek tax shelter. With the onslaught of tornadoes, floods and blizzards, 2011 saw more than its fair share of catastrophes. If you were among the victims, you can take an itemized casualty loss deduction for property losses that weren't reimbursed by insurance. Casualty loss deductions are subject to two limits: 1. After tallying your losses from an incident, subtract $100 from the total.

(If disaster struck you more than once in 2011, subtract $100 from the total associated with each event). 2. To calculate your total for the year, add up the losses (after the $100 adjustments) from each event and subtract 10 percent of your adjusted gross income from that number. The result is your allowable losses for the year.

7

If you use a tax preparer, choose carefully. New regulations require paid tax preparers to have a Preparer Tax Identification Number. Before hiring someone to do your taxes, make sure he or she has one.

6

Pay for that 2010 Roth IRA conversion. Did you convert a traditional IRA to a Roth IRA in 2010? If so, you had an option to split the income and report half on your 2011 tax return and half on your 2012 tax returns. If you elected to do so, it’s time to make that first payment.

When hiring a preparer: Ask about fees in advance, since costs often rise as the filing deadline draws closer. Always review your return before signing it. Never sign a blank return for a preparer to fill in later. Avoid refund anticipation loans. The interest rates are typically sky-high.

Give a gift that lasts forever... Your contributions, memorials, bequests, and planned gifts to LCCF build a permanent endowment fund that provides annual grant making to quality charitable projects benefiting Lewis & Clark County and its residents in perpetuity. To find out how you can give a gift that will benefit our community forever visit . . .

www.lccfoundation.org

Contact Linda Carlson

406.459. 8748


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FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

5 ways you can be a philanthropist without writing a check NICOLE RUSH MONTANA COMMUNITY FOUNDATION

WHEN MOST PEOPLE THINK of the word “philanthropist” they think of people like Bill Gates, John D. Rockefeller, or Warren Buffet –Americans who have made big impacts by establishing large foundations or gifting huge sums of money to worthy causes or institutions. But ordinary people can be philanthropists too.The word “philanthropy” combines two Greek words, philos and anthropos. Philos means “loving” in the sense of benefitting, caring for, or nourishing and anthropos means “human being” in the sense of “humanity.” “Philanthropy” has a very simple defini-

tion: to love, affirm or enhance humanity or humankind. In this sense, a “philanthropist” is anyone who works for benefit of others or society as a whole—not just those who have the ability to write large checks. You don’t have to be very wealthy to make a big difference for local people in need. In fact, there are lots of ways to give back to your community besides writing a check right now, and most can be accomplished through simple estate planning:

Give Your Retirement Plan Assets

1

Many people don’t know that they can use their retirement plans to make a gift to charity, and that using these funds can be an effective estate

planning strategy. Retirement plans, including IRAs, Keoghs, 401(k)s and nonqualified deferred compensation may be subject to income, Federal and state estate taxes, and even excise taxes when plan holders die.These taxes can currently consume up to 75 percent of the assets in those plans.This tax makes retirement plans one of the worst assets to leave your heirs but one of the best vehicles for leaving a legacy to the charities you care about. Giving the remainder of a retirement plan is a way to make sure you have access to all your assets during your lifetime while protecting “left-over” funds from taxation.

Designate a Charity as a Beneficiary of your Checking or Savings Account

2

If you’re one of the 65 percent of Americans who doesn’t have a will, you can still leave money to charity by assigning a charity as the payable on death (POD) designated beneficiary of your checking or savings account.You retain control of these accounts during your lifetime, but after the death of the account holder, the balance in the account passes to the designated POD beneficiary – without a will and without your estate entering probate.

Your Money: Last-minute tax tips ARA CONTENT

ARE YOU AMONG the millions of Americans who scramble every year to meet Uncle Sam”s income tax filing deadline? The Internal Revenue Service (IRS) estimates that one-third of Americans wait until the last minute to file their personal income tax returns (for 2011 income tax returns, the deadline has been extended to April 17). If you count yourself among that group, it”s important to realize the costs could be adding up – from missing important deductions that could affect the amount of your refund to incurring penalties from the IRS for not filing on time. The keys to paying exactly what you owe and obtaining a refund sooner are

timely filing, familiarity with relevant tax deductions and credits, and proper organization, according to FindLaw. com, the nation’s leading website for free legal information. If you don’t have the time or inclination to become familiar with the U.S. tax code, consider getting the help of a professional tax preparer or a tax attorney, or at the very least using tax software that can guide you through income tax form preparation. To help you make the most of tax season, here are some additional tips from FindLaw.com: START A FILE. Somewhere in your home, create a place where you can store all the documents you'll need to complete your taxes. When W-2 forms, mortgage statements and other tax-related documents are mailed to you, put them into this location, file or

box them, and check them off as they come in. In addition, keep receipts of potentially deductible items such as medical and dental expenses, tuition, daycare and after-school care expenses. Seek advice for your small business. Whether by choice or out of necessity, many Americans have decided to go into business for themselves as a result of the “great recession.” From the moment you make this choice, go to an accountant who specializes in working with small business owners and get advice on how to properly and accurately record all of your business expenses and revenue. Accurate bookkeeping is essential to ensuring accurate payment of the taxes your business owes. An ounce of prevention will go a long way toward helping avoid an IRS audit. GET HELP. Don’t have time to figure out all the ongoing changes to tax

regulations? Don't have the interest? Then get the help of a professional tax preparer immediately after you receive W-2 forms from your employer in order to complete and file your taxes before the filing deadline.The IRS offers help, too. Visit www.irs.gov for information about filing your income taxes. Check out IRS publication 17,“Your Federal Income Tax,” on the IRS website. It highlights everything you need to know about filing your personal income tax return.The IRS also offers help over the phone and interactive tax assistance through its website. GO ELECTRONIC. Every year, more and more people file their taxes electronically. Why? Because it offers ease of use and quicker tax refunds, which are typically issued two weeks after filing. In 2010, nearly 100 million Americans (70 percent of tax filers)


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3

Bequeath Your Stocks, Bonds or Mutual Funds to Charity

Similar to a POD designation, the Montana Uniform Transfers on Death (TOD) Security Registration Act allows the issuer, transfer agent, or broker of stocks, bonds or mutual funds to transfer the securities directly to the designated beneficiary upon the owner’s death.You can designate a charity as the beneficiary by filing a TOD registration with the company where the account is held. Just as with a POD designation, a TOD registration does not require a will designate a beneficiary of these accounts.

Leave Your Property to Charity

4

You can designate your real property (located in Montana) to a charitable beneficiary without probate using a beneficiary deed. Owners can sign and record a beneficiary deed with

filed their taxes electronically, using off-the-shelf tax preparation software or the IRS website's filing page, according to IRS estimates. Electronic filing can reduce math errors and the cost of paying for return receipts at the post office. When you file electronically, consider using direct deposit, which authorizes the IRS to deposit your refund directly into your checking account instead of sending you a check in the mail. DON’T AVOID FILING. Some people, especially those who are selfemployed or have been laid off, worry that they can't pay the full amount of taxes they owe.Therefore, they avoid filing. Don’t do it. It will only make matters worse. First, give yourself time by filing for an extension, which gives you up to six months to file a return. Second, it’s better to pay something rather than nothing if you owe on your taxes. A non-payment of your taxes can result in

FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

17

the clerk and recorder in the Montana County where the property is located. You are not required to obtain the consent of the benefitting party, and the beneficiary has no ownership rights over the property until the owner dies. Using a beneficiary deed could give your favorite charity a new location, or an asset that could be sold for the benefit of the Montanans they serve.

Remember Charity in Your Will

5

Sixty-five percent of Americans don’t have any of the most basic estate planning documents, including a will. In a study that tracked 20,000 Americans over the age of 50 from 1995 to 2006, the University of Georgia found that among people who donate to charity, fewer than 9.5 percent had a charitable estate plan. But leaving a bequest to your favorite charity could make a big difference for the future of Montana. If Montanans left just 5 percent of their estates to charity between now and 2050, more than $6 billion would be

penalties and interest. Even a partial payment can reduce your penalties and shows good faith if you're audited. KEEP YOUR RETURNS. In the event that you’re audited, it’s important to have up to seven years of previously filed income tax returns on file.These are also useful in preparing current income tax returns, and may be valuable to your estate's executor if you become incapacitated or die unexpectedly. PLAN AHEAD. Tax regulations change every year.To lower your tax burden, start keeping good records now and become familiar with changes to the tax code for 2012 by consulting with an experienced tax attorney, accountant, or by visiting the IRS website, www.irs.gov. To learn more about personal income taxes, visit FindLaw.com.

given.That’s more than twenty times larger than the largest foundation in Montana! If you have a charity you support regularly, giving using one of these

methods is a great way to see that support continue after you are gone.There are lots of ways to make a difference for future generations – and that’s the definition of philanthropy.

rancher student retired teacher tech entrepreneur family business owner young anyone can be a professional retired teacher entrepreneur financier empty nester philanthropist farmer family nurse lawyer rancher civic leader college professor engineer waitress family let us teacher empty nester young parent show you how lawyer entrepreneur grandparent manager college student doctor ar tist business owner farmer ar tist athlete financier civic leader family business owner Helping Montanans plan and carr y out their charitable giving since 1988. www.mtcf.org | 406-443-8313


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FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

Planned giving isn’t sexy, but it can be powerful! SHODAIR CHILDREN’S HOSPITAL

IT’S TRUE: No one ever wows their spouse at a romantic dinner by talking about the importance of a life estate deed, and no one ever swooned over the mere mention of a charitable remainder unitrust (CRUT). In fact, I often get the impression when I witness a new planned giving officer speaking with a potential donor that the two parties are on different planets. The gift officer dives into the “exciting features” and “powerful tax-benefits” of the many different planned giving vehicles being discussed while the potential donor sits, eyes glazed, simply searching for relevant information to use to support the charities they love now and in the future.

Unfortunately, this isn’t a rare occurrence. It’s also a missed opportunity for both the donor and their charities. Gift planning is so often misunderstood and made unnecessarily complicated. There are many myths that abound regarding planned giving that inhibit people from doing simple charitable planning. Here are a few of my favorites: “Planned giving is just for the rich,” “Planned gifts are only for old people,” and “Estate planning is expensive and complicated.” In reality, planned giving is simple. By definition, a planned gift is any major gift made during a donor’s lifetime or at death as part of a donor’s overall financial and/or estate planning. If you want to make a bigger philanthropic impact on the organizations you care about, but thought it was out of your reach, it’s time you looked at planned giving.

Create a Legacy of

Giving

Give a gift that will bring a lifetime of benefits With a gift annunity, you make a gift to Shodair Children's Hospital and you receive fixed income for life. Your payment rate will be based on your age and a portion of your payment may even be tax free. You may also receive valuable tax savings from a charitable income tax deduction in the year you make the gift. Your generosity will allow us to further our legacy of caring that has helped Montana's families since 1896. For more information on creating a charitable gift annuity, please call Wally Long at (406) 444-7560. 2755 Colonial Drive Helena, Montana 59601

www.ShodairLegacy.org

© 2012 Crescendo Interactive

WALLY LONG, FOUNDATION DIRECTOR

While there are many planned giving vehicles available, it’s best to think of them in three simple groups:

1 2 3

Gifts that anyone can afford, Gifts that pay you income, and Gifts that protect your assets.

Gifts that anyone can afford are typically gifts that cost you nothing during your lifetime, like gifts from your will or a trust or gifts from a retirement plan. You can also greatly leverage your giving by not giving cash. Why not “buy low and give high” and give a gift of appreciated securities or the a gift of life insurance? Gifts that pay you income allow you to make a more substantial gift to your favorite charities while providing you with some key benefits. Utilizing a charitable gift annuity or charitable remainder trust may provide an additional source of lifetime income for you, your spouse, or other beneficiaries. You may get a potential increase in the income you’re currently receiving from your investments and you may receive an immediate tax deduction for a

portion of your gift with the ability to pay no capital gains tax at the transfer of appreciated assets to your gift plan. Perhaps increased income is not your primary objective. You might be concerned about the complexities of estate planning due to family business interests, a large ranching or farming operation, or highly appreciated property. Will taxes devour the majority of your life’s work before you’re able to pass that on to the next generation? Fortunately, there are very useful charitable tools such as charitable lead trusts, retained life estates, and charitable bargain sales that may help you protect the assets you’ve worked so hard to build in your lifetime. At Shodair Children’s Hospital, our planned giving donors come from every corner of the state, from many different backgrounds, professions, and experiences. The one thing all of these supporters have in common is a passion for helping children in Montana and a sincere desire to improve their health and wellbeing, now and in the future. The true power of planned giving lies in harnessing and directing our donor’s passion so that they may each have a significant impact on the lives of Montana’s children.


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ESTATE AND FINANCIAL PLANNING

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Estate planning can address health care and disability issues:

It’s not just tax planning LOGAN L. BAKER

ESTATE PLANNING IS OFTEN associated with the federal estate tax, but it encompasses much more than that. In fact, legislation passed by Congress late in 2010 has greatly diminished the scope of the federal estate tax, at least through the end of this year. Under current law, the estates of individuals who passed away in 2011 are not subject to federal estate tax on the first $5,000,000 of the gross estate. Thanks to the inflation indexing provision included in the 2010 legislation, the exemption amount increases to $5,120,000 for the estates of individuals who pass away in 2012. However, absent Congressional action, these exemption amounts will sunset at the end of 2012 and will revert to $1,000,000 for 2013. Such a result would bring many more estates into the ambit of the federal estate tax. In addition to estate tax considerations, proper estate planning can help individuals transfer assets more efficiently, without the cost and delay of the probate process. This is frequently accomplished, in part, through a revocable trust – an instrument that allows the grantor to retain control over his or her assets during life, while transferring those assets subject to the terms of the trust upon the grantor’s death. These trusts may be relatively simple, but they can also be as flexible and intricate as the grantor’s situation requires. A trust can be used to transfer assets outright to a beneficiary, or it can place conditions on transfers – such as a child reaching a certain age

or graduating from college. Trusts can also be used to manage the complexities that are often present when prior marriages are involved. A qualified terminable interest property (“QTIP”) trust is frequently used to provide income to a spouse, while ensuring that most or all of the trust principal is available for children. The foundation of most estate plans is a will. Without a will, a decedent’s assets will be subject to distribution under Montana’s law of intestate succession. These laws are rigid in their application, and they make no allowance for wishes of the decedent that are not memorialized in a will. The federal estate tax remains in flux - Although relatively few estates are currently subject to the federal estate tax, Congressional action may (and Congressional inaction certainly will) subject many more estates to taxation beginning next year, and at higher tax rates. Therefore, tax planning remains an essential component of estate planning. Under current law, estates are subject to tax at the rate of 35 percent on amounts over $5,120,000. One important feature of the federal estate tax that remained intact throughout the recent legislative changes is the unlimited marital deduction. That means that one spouse can leave all of his or her assets to the surviving spouse, and the value of those assets will be deducted from the gross estate, reducing the gross estate to $0 for federal estate tax purposes. While leaving everything to the surviving spouse may sound tempting, it is not always the best strategy from an estate planning perspective. Individuals may have non-tax reasons for want-

ing to provide for children, charities, or other beneficiaries besides the surviving spouse. While changes to the federal tax code rarely result in less complexity, the 2010 legislation did just that with the long-awaited introduction of exemption “portability” into the estate tax. Portability means that a surviving spouse can utilize the deceased spouse’s unused exemption amount. In 2012, this allows the surviving spouse to enjoy not only one, but two exemption amounts totaling $10,240,000. Before 2010, utilizing both spouses’ exemption amounts required the use of a separate estate planning mechanism known as the credit shelter trust. Portability is not automatic – an estate tax return must filed, even if one would not otherwise be required, in order to transfer an exemption to the surviving spouse. Although portability has simplified the federal estate tax, individuals should be aware that the portability provision is scheduled to sunset along with the higher exemption amounts and the 35 percent rate at the end of 2012. This uncertainty requires careful planning with an eye toward flexibility.

By executing a power of attorney, an individual can appoint an agent to act on his or her behalf in the event of the individual’s future incapacity. A health care directive allows an individual to clearly state his or her wishes regarding end-of-life care. These instruments can also help individuals manage a future or current disability. All parts of an estate plan must work together - Proper estate planning generally involves multiple documents that must work together to achieve the intended results. A will frequently includes a “pour-over” clause that transfers the residuary of an estate into a trust. Once in the trust, it is the trust that governs the disposition of those assets. If the will and trust are not drafted to work together, the decedent’s wishes might not be carried out. Individuals who already have an estate plan in place should consider reviewing that plan to make sure that it is comprehensive, consistent, and not compromised by recent legislative changes. This is especially true if the plan involves multiple documents that were drafted at different times. Individuals who have not yet begun the estate planning process should conEstate planning addresses important sult with an estate planning attorney to healthcare and disability considerations. determine the best approach to address Beyond wills and trusts, estate planning their specific needs and goals. also provides individuals with additional

flexibility to make financial and personal decisions relating to incapacity and endof-life care.

See ad on back.

Mr. Baker recently moved to Helena, where on March 1, 2012, he will be joining the law firm of Browning, Kaleczyc Berry & Hoven, P.C.. A graduate of the University of Montana Law School with a J.D., and a masters degree in taxation from New York University School of Law, LL.M., Mr. Baker also has a graduate degree, MBA, from Florida State University and an undergraduate degree in Legal Studies, B.A., from University of Central Florida. Mr. Baker is a member of the Bars of District of Columbia, New Hampshire, New York, and Vermont. He will be sitting for the Montana State Bar examination later this month.


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FEBRUARY 26, 2012

ESTATE AND FINANCIAL PLANNING

B ROWNING K ALECZYC B ERRY & H OVEN P . C . Bozeman

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Great Falls

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Helena

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Missoula

ESTATE PLANNING BUSINESS PLANNING PROBATE TRUSTS ESTATE LITIGATION Joanne M. McCormack

TAX & TRUST LITIGATION

Logan L. Baker1

(406) 443-6820 www.bkbh.com MISSOULA OFFICE Depot Building, Suite 300 201 W. Railroad Street Missoula, MT 59802-4214

HELENA OFFICE 825 Great Northern Blvd., Suite 1052 Helena, MT 59624-1697

BOZEMAN OFFICE 801 W. Main, Suite 2A Bozeman, MT 59715-3358

GREAT FALLS OFFICE Liberty Center, Suite 302 9 Third Street North Great Falls, MT 59403

1 Mr. Baker recently moved to Helena and will begin working at BKBH as an estate planning attorney on March 1, 2012. While he is a member of the state bars of the District of Columbia, New Hampshire, New York and Vermont, Mr. Baker is not yet a member of the Montana Bar. He is sitting for the Montana Bar examination in late February. 2 BKBH’s Helena office will be moving in May from the Great Northern Town Center Location [825 Great Northern Blvd., Suite 105] to its new headquarter’s office at 800 N. Last Chance Gulch.


Estate Planning 2012