ESTATE PLANNING SERVICES

Wealth Transfer Planning

Impact of the 2010 Tax Act on planning considerations and strategies

Robert A. Luther, Jr. ChFC®, CLU®, CRPC®

Senior Financial Advisor352-350-2713

22

Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and other subsidiaries of Bank of America Corporation (BAC).

Trust and fiduciary services are provided by Merrill Lynch Trust Company, a division of Bank of America, N.A., Member FDIC. Insurance and annuity products are offered through Merrill Lynch Life Agency Inc., a licensed insurance agency.

Bank of America, N.A., Merrill Lynch Life Agency Inc. and MLPF&S, a registered broker-dealer and Member SIPC, are wholly owned subsidiaries of BAC.

Investment products, insurance and annuity products:

.

Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value

Are not DepositsAre Not Insured by Any Federal

Government AgencyAre Not a Condition to Any Banking

Service or Activity

MLPF&S and Bank of America, N.A. make available investment products sponsored, managed, distributed or provided by companies that are affiliates of BAC or in which BAC has a substantial economic interest, including BofATM Global Capital Management, BlackRock and Nuveen Investments.

© 2011 Bank of America Corporation. All rights reserved. | ARX041D4 | PRES-02-11-0551 | 2/2011

29807 428504PM-0211

Merrill Lynch does not provide tax, accounting or legal advice. Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Neither Merrill Lynch nor its financial Advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal, professional advisors.  The case studies presented are hypothetical and do not reflect specific strategies we may have developed for actual clients. They are for illustrative purposes only and intended to demonstrate the capabilities of Merrill Lynch and/or Bank of America. They are not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality.

3

The Impact of the 2010 Tax Act

3

The 2010 Tax Act1 made dramatic changes to gift and estate taxes

Creates new gifting opportunities

Increases the importance of having a well thought out wealth transfer plan

1 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

3

4

Topics for discussion

Current transfer tax landscape

Implications of the 2010 Tax Act

How Merrill Lynch can help

55

How is transfer of wealth taxed?

Federal tax system imposes three types of taxes

Gift Taxes

Estate Taxes

Generation Skipping Transfer (GST) Tax

On assets transferred upon death

On assets transferred during your lifetime

On assets transferred to grandchildren or future generations

6

Estate tax

Marital deduction exempts assets left to a spouse (must be a U.S. citizen)

Exclusion amount eliminates tax on a specified amount

2010 Tax Act

­ Postponed the increase in the maximum tax rate and the drop in the exclusion amount

­ Allows transfer of any unused exemption to a spouse with a proper election (“portability”)

Gift Taxes

Estate Taxes

Generation Skipping Transfer Tax

Exclusion Amount

Maximum Tax Rate

2009 $3.5 million 45%

2010 $5.0 million1 35%

2011/12 $5.0 million2 35%

2013 $1.0 million 55%

1 May elect out and pay capital gain2 Will be indexed for inflation in 2012

7

Case study: Using portability to reduce estate tax

Spouse 1$3 million

Children

Spouse 2$7 million

A couple has $10 million in assets that they want to leave to their children

The first spouse to pass away holds $3 million in assets; the surviving spouse holds $7 million

Client situationTax Consequences

$3 million free of estate tax

$5 million estate tax-free with exemption

$2 million estate tax-free with

portability

$2 million of exemption unused

At the death of the first spouse, the entire $3 million passes to the children estate tax-free

That leaves $2 million of unused exemption

At the death of the second spouse, $5 million passes estate tax-free using the second spouse’s exemption

The remaining $2 million can pass estate-tax free using the first spouse’s unused exemption amount

Portability is not automatic

May not be available after 2012

Note

8

What is included in your estate?

Investments Bank accounts IRAs and other

qualified plan balances Life insurance

proceeds from policies you own

Ownership in a private company

Partnership interests Real estate investments Farm, ranch,

timber property

Your home and vacation property

Vehicles, boats, plane Art, antiques,

collections Personal belongings

Other PropertyBusiness InterestsFinancial Assets

99

Reducing your taxable estate through gifting

Spouse Marital Deduction

Unlimited tax-free transfers to spouses who are U.S. citizens

Charitable Entities

Charitable Deduction

Unlimited transfers to qualified charities* free of gift and estate taxesIncome tax deduction may be limited in certain situations

Education and Healthcare

Payments made directly to the provider for qualified tuition or healthcare expenses are not considered taxable gifts

BeneficiariesAnnual Exclusion$13,000 per recipient per year

Lifetime ExclusionReduces your available estate tax exclusion

Taxable TransfersAt gift tax rates

*This applies to private foundations as well as public charities.

10

Gift tax opportunities

2010 Tax Act increases the lifetime exemption

- Creates an opportunity to gift up to $5 million without triggering gift taxes

- Provisions “sunset’” in 2013

- Opportunity may be temporary

Gift Taxes

Estate Taxes

Generation Skipping Transfer Tax

ExclusionAmount

MaximumTax Rate

2009 $1 million 45%

2010 $1 million 35%

2011/12 $5 million1 35%

2013 $1 million 55%

1 Will be indexed for inflation in 2012

11

Generation Skipping Transfer Tax

Tax on assets given to grandchildren or future generations

In addition to gift and estate taxes

Flat rate equal to top estate tax rate

Exclusion eliminates tax on a specified amount

2010 Tax Act ­ Changed the tax rate and exclusion amount,

but only temporarily­ Unlike estate tax, exemption is not portableGift Taxes

Estate Taxes

Generation Skipping Transfer Tax

Exclusion Amount

Maximum Tax Rate

2009 $3.5 million 45%

2010 $5.0 million 0%

2011/12 $5.0 million1 35%

2013 $1.4 million2 55%

1 Will be indexed for inflation in 20122 Estimate of indexed amount in 2013

12

Current transfer tax landscape

Planning implications

How Merrill Lynch can help

Topics for discussion

13

Opportunities created by the 2010 Tax Act

The 2010 Tax Act creates opportunities for

Individuals who anticipate transferring more than $1 million to heirs

Couples who anticipate transferring more than $2 million

Those who want to leave assets to grandchildren or future generations

Gifting now

May reduce gift and estate taxes

Removes future appreciation from your taxable estate

14

Issues to consider

Considerations

Impact of a large gift on your future financial flexibility

Impact of large gifts on recipients and their ability to handle the assets responsibly

The need for safeguards to see that assets are

­Managed properly

­ Protected from creditors and effects of divorce

­Distributed as you had planned

­Used in the manner that you intend

1515

Ensuring assets are used as you intend

Inheriting substantial wealth can make it more difficult to maintain financial discipline

Placing assets in a trust enables you to

­ Stipulate how the funds are to be used

­ Appoint an independent trustee to control distributions

16

Additional benefits of a trust

Trusts May include incentives/conditions for

next-generation beneficiaries:

– May be structured to encourage education

– May require gainful employment before distributions begin

Protect assets from creditors including the effects of divorce

Selection of trustee can ensure professional asset management

A trust can help you achieve additional goals

1717

Need to review existing plans

The 2010 Tax Act may have unintended impact on existing estate plans

Estate planning documents often contain “formula clauses”

Designed to minimize estate taxes

Eliminate the need to update documents as exemption amounts change

Higher estate exemption may leave certain beneficiaries with less than you intend 2005 2006 2007 2008 2009 2010 2011

$1.5

$2.0 $2.0 $2.0

$3.5

$5.0 $5.0

Estate Tax Exemption($ millions)

18

Case study

Client situation

John’s Will was drafted in 2005 when his net worth was $5 million

His children are beneficiaries of a bypass trust to be funded with his “remaining exemption amount”

His second wife will receive the balance

Had John died in 2005, $1.5 would have gone to his children and $3.5 million would have gone to his wife

Current impact

John’s net worth is now $6 million

If he passes away before the end of 2012, the bypass trust will receive $5 million, leaving his wife with just $1.0 million

Distribution of Assets($ millions)

2005 2011-2012

$1.5

$5.0

$3.5

$1.0

Children Wife

19

Impact of gifting now

Considerations Advantages

Ability to remove up to $5 million from your taxable estate free of gift taxes—a potentially limited opportunity

Appreciation on transferred assets is removed from your taxable estate

Reduces estate taxes, even if the estate tax exemption is ultimately lowered (“claw back”)

Reduces the need to rely on formula clauses

Transfers are subject to the 3-year rule to avoid deathbed transfers

You are transferring assets, which creates a need to understand the impact on your future financial flexibility

20

Current transfer tax landscape

Planning implications

How Merrill Lynch can help

Topics for discussion

21

What matters to you matters to us

21

Providing for your needs as well as those of family members

Passing on your wealth and values

Establishing deep connections with the next generation

Achieving long-held family goals and aspirations

Supporting philanthropic causes that are important to you

We are committed to helping you at every step along the way

21

2222

Wealth Structuring

An integrated, personalized approach to the full range of financial and investing needs

We can help you build and pass on a unique personal legacy

Simplifying, consolidating and coordinating wealth transfer and investment planning through a single resource

Comprehensive solutions based on deep insight into your needs

A solid foundation for a complete, customized financial strategy

Insurance

Trusts

Philanthropy

Financial Advisor

Client

2323

We can help you with trusts that ­ Direct who will receive assets and under what circumstances­ Encourage responsible use of funds by heirs­ Provide for professional management

Transfer Structure

We can help you consider strategies that ­ Complement or update your existing plan­ Take advantage of the higher gift tax exemption and provide

financial flexibility

Gifting Strategies

Merrill Lynch can assist with wealth transfer planning:

With the higher gift tax exemption, we can help you­ As you assess how much you are comfortable giving­ Implement strategies to contain the cost of long term care

Gift Amount

How Merrill Lynch can help

2424

Addressing long-term care and wealth transfer goals

Flexible long-term care options can provide cost-effective coverage that can help you contain future costs

Example is for illustrative purposes only. All policy guarantees are backed by the claims paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claims paying ability of the issuing insurance company.

With MoneyGuard® Reserve, Lincoln provides three guaranteed benefits

A long-term care benefit to cover qualified LTC expenses

Money-back guarantee for return of initial premium

Income tax-free death benefit for beneficiaries

25

Using a CST to take advantage of 2010 Tax Act opportunities

Additional advantages

Your spouse’s ability to withdraw income and take discretionary distributions can provide financial flexibility

Can help reduce taxes in states that impose estate taxes

Protects assets from creditors including the effects of a child’s divorce

May be structured to encourage education or gainful employment

Selection of trustee can provide professional asset management

Establishing a Credit Shelter Trust (CST) now can help you take advantage of the higher gift tax exemption

Client

Spouse

Transfer up to $5 million gift tax-free

Discretionary distributions

Income

Children

Remainder

Credit Shelter Trust

2626

Life insurance trusts: Leveraging your gift

Gifts to an irrevocable life insurance trust enable you to take advantageof the unique estate and income tax provisions that apply to insurance

Can also be structured with a single life policy

Irrevocable Life Insurance Trust

$3,510,800Life Insurance Policy

Assumptions:

Married couple: 50 year old female and 58 year old male, both in good health

Policy is held until death with no withdrawals of any kind

Second death expected in 39 years

IRR on Death Benefit at Second Death: 5.39%

All policy guarantees are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill Lynch or its affiliates, nor do Merrill Lynch or its affiliates make any representations or guarantees regarding the claim-paying ability of the issuing insurance company.

FOR ILLUSTRATIVE PURPOSES ONLY, NOT AN ACTUAL CASE.

$3,000,000

$3,000,000InsurancePremium

Death Benefit

Estate and income tax-free payment

$23,212,262Life Insurance Policy

on both Husband and Wife

27

Preserving assets for future generations with a Dynasty Trust

Dynasty Trusts are helpful in minimizing estate and GST taxes ­ Important if you are taking advantage

of the new higher gift tax exemption­ Appreciation escape future transfer

taxes

Choice of state for trust administration may enable you to extend the term (consult with your legal counsel)

­ Delaware, for example, imposes no limit on the term

May protects assets from creditors, spendthrifts and the effects of divorce

Can be particularly effective when assets are used to purchase second-to-die life insurance policy

28

Andrew and Eileen own a profitable business worth an estimated $7 million

They eventually want to sell the business and anticipate its value will increase over time

Although they want to gift interests to their children now to take advantage of the new, higher gift tax exemption, they want to maintain control of business decisions

For Illustrative Purposes Only

Client situation

Case Study: Transferring ownership in a family business

29

Delaware Administrative

Trust

$5,000,000

company stock

Directed

distributions

Dividends

Company

Maintaining control with a Delaware Administrative Trust

Control of the

company

Andrew and Eileen contribute $5 million of company stock to a Delaware Administrative Trust, removing it from their taxable estate

By serving as Investment Advisors to the trust, they are able to maintain control of The company The payment of dividends The decision to sell

ChildrenClient

3030

Control features of a Trust

Control asset distribution Help minimize estate taxes Fiduciary asset management

Tax benefits of an IRA Tax-free accumulation of

Roth IRA earnings* Tax-deferred accumulation

of traditional IRA earnings

Traditional IRA

Trusteed IRA: Integrating your retirement assets into your estate plan

Trusteed IRA

Roth IRA Qualified plan assets

With careful planning, the unique tax attributes of retirement assets can be preserved for heirs

*Certain conditions must be met for the earnings on a Roth IRA to accumulate free of income taxes

3131

The multigenerational benefits of a Trusteed IRA

Stretching IRA benefits for children and grandchildren

Assumptions:

Client: Age 70IRA balance: $1,000,000Rate of return: 6%

Child 1 Age 45Child 2 Age 40Child 3 Age 35

Client lives to full life expectancy (age 85) and takes only required minimum distributions during life

Each child lives to full life expectancy and only receives required minimum distributions

Example is for illustrative purposes only. Does not represent an actual investment.

$______ $______ $______

Child 2$______

Child 1$______

Child 3$______

* Assumes no after-tax reinvestment.

3232

How Merrill Lynch can help

We assist clients with a full range of wealth transfer planning strategies

We focus on providing customized services that address your unique situation and needs

We can help you identify, evaluate and implement the strategies that are best suited to your needs

33

Current transfer tax landscape

Planning implications

How Merrill Lynch can help

2010 Tax Act creates gifting opportunities

Higher gift exemption increases the need for planning

Identify, evaluate and execute strategies to achieve your goals

Our discussion today

34

The next step

34

Discuss your goals

Review any existing plans and documents

Discuss strategies that may be useful in achieving your goals

Discuss how Merrill Lynch Trust Company* can help

- Planning and execution

- On-going management as Trustee, Co-trustee or Executor

Meet with your Financial Advisor to:

* Merrill Lynch Trust Company is a division of Bank of America, N.A.

35

The next step

35

Discuss your goals

Review any existing plans and documents

Discuss strategies that may be useful in achieving your goals

Discuss how Merrill Lynch Trust Company* can help

- Planning and execution

- On-going management as Trustee, Co-trustee or Executor

Meet with your Financial Advisor to:

* Merrill Lynch Trust Company is a division of Bank of America, N.A.

35

36

© 2011 Bank of America Corporation. All rights reserved. Member Securities Investor Protection Corporation (SIPC).

197329 ARX041D4 Code 428504PM-0211

37

Potential clawback

Method of Calculating Gift Tax CreditNo Prior Gifts

Date of Gift Date of Death

Tentative Taxable Estate: $1,000,000 $1,000,000 $6,000,000

Taxable Gifts $5,000,000 $5,000,000 $0

Total Taxable Estate $6,000,000 $6,000,000 $6,000,000

Tentative Tax on Total Estate $2,940,800 $2,940,800 $2,940,800

Less: Total Gift Tax Paid or Payable $660,000 $2,045,000 $0

Tentative Tax Before Unified Credit $2,280,800 $895,800 $2,940,800

Less: Maximum Unified Credit $345,800 $345,800 $345,800

Estate Taxes Owed $1,935,000 $550,000 $2,595,000