Planning Techniques to Reduce Estate Taxes ANNUAL GIFTING PROGRAM Gift Tax Exclusion: $11,000 ($22,000 If Married) The first $11,000 ($22,000 if married) you give to each person each year is exempt from gift tax. You can also make unlimited gifts for medical or tuition expenses so long as they are paid directly to the provider. In general, the gifted asset should not be appreciated property because the advantage of income tax "stepped-up" basis on death will be lost. For annual gifts to donees under age 21, a gift tax exclusion trust should be considered to provide trust management of the gifted property. UNIFIED CREDIT SHELTER TRUST With a Unified Credit Shelter Trust, the surviving spouse is the lifetime beneficiary; at his or her death, the trust assets are distributed to the children or the trust may be continued for the benefit of the descendants of the husband and wife. If the credit shelter trust is properly structured, then none of the trust assets are included in the surviving spouse's estate, even if those assets increase in value. Without a unified credit shelter trust, the estate tax unified credit of the 1st spouse to die may be wasted, thereby possibly resulting in substantial avoidable estate taxes upon the death of the surviving spouse. IRREVOCABLE LIFE INSURANCE TRUST Owning life insurance is a good way to help your family pay the estate taxes after your death, because the death benefit can be used to pay the Internal Revenue Service. In addition, a trust such as an irrevocable life insurance trust can actually preserve some of your wealth by ensuring that such proceeds are not subject to estate taxes upon your death. Using this method of gifting, you may transfer up to $11,000 ($22,000 per couple) per year, per beneficiary, tax-free out of your estate to fund life insurance premiums in an irrevocable trust. Upon the death of the policyholder, the trust will receive the life insurance proceeds not only income tax-free (as with all life insurance policies), but also free of estate taxes. INSTALLMENT SALES By selling an asset to family members on an installment basis, the potential appreciation on the asset is shifted to family members. This works only if the purchase price is "full and adequate consideration" and the arrangement is properly documented in order to create a legally enforceable obligation. Upon the death of the payee, the unpaid balance of the note is included in his or her taxable estate for estate tax purposes, but the asset that was sold is out of the estate, including its appreciated value. In the alternative, under a self-cancelling installment note (SCIN), the unpaid balance of the note arguably is not included in the taxable estate, thereby resulting in significant estate tax savings. GRATS & QUALIFIED PERSONAL RESIDENCE TRUSTS A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust that allows a person, referred to as a grantor, to transfer property to the trust, retain an income interest from the trust for a period of years, and pass the property to his or her heirs at the end of that period free of tax. Since the grantor retains an interest in the trust for a period of years, the value of his or her gift to the ultimate beneficiaries of the trust is discounted for gift tax purposes. Therefore, all the growth on the value of the property escapes estate tax. If the grantor does not survive the initial period of years, during which he or she is entitled to income from the trust, all the property in the trust may be included in the grantor's estate for estate tax purposes. A QUALIFIED Personal Residence Trust (QPRT) is a variation of the Grantor Retained Annuity Trust transaction which is funded with a personal residence or vacation home. FAMILY LIMITED PARTNERSHIPS The Family Limited Partnership (FLP) allows you to maintain control of your assets, while transferring partnership interests to family members. A FLP is a partnership that has both general and limited partners. The general partner of an FLP has full control over the FLP even if the general partner owns a small percentage of the FLP. The principal benefit of an FLP is its significant impact in reducing a transferor's gift and estate tax. By using an FLP, the owner can take advantage of gift and estate tax valuation rules relating to "minority interests" and "marketability" that can reduce transfer taxes. Due to the significant restrictions imposed on the limited partnership units, the partnership units typically will have a value that is approximately 30 percent less than the value of the assets that originally were transferred to the partnership. (actual discounts can range from 25% to 60%). Once the FLP has been established and funded, limited partnership units may be given to younger family members by means of an annual program taking advantage of the $11,000 gift tax exclusion. Parents may make tax-free gifts of limited partnership units with a value of $11,000 ($22,000 if married) to each child or grandchild each year. The discounts described above will be used in determining the value of these gifts, removing the property from the parents' estates at a lower value. In addition, the future appreciation in the value of the limited partnership units will be excluded from the donor's gross estate for estate tax purposes. Over time, a series of gifts of partnership units made in this manner can result in large transfer-tax savings. CHARITABLE TRUSTS & FOUNDATIONS

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