What’s the Most Important Step in Farm Succession?
There are countless horror stories about grandchildren in tears, as they watch family farmland auctioned off because their grandparents had to liquidate assets to satisfy the taxes.
Another tale is siblings who were once in business together and now don’t talk to each other after one felt slighted because they didn’t receive the family’s antique tractor.
Ag Web’s recent article entitled “Who Gets What? Take This Important Estate Planning Step” says that no matter where you are in the process, you can always take another step.
First, decide what you’re going to do with your assets. Each farmer operating today needs to be considering what happens, if he or she passes away tonight. Think about what would happen to your spouse or your children, and who will manage the operation.
The asset part is important because you can assign heirs to each or a plan to sell them. From a management perspective, farmers should then reflect on the wishes of your potential heirs.
Children who grew up on the farm will no longer have an interest in it. That’s because they’re successful in business in the city or they just don’t have an interest or the management ability to continue the operation.
Second, assets if your estate will owe federal estate taxes. Right now, the federal estate tax exemption sits at $12.06 million per person. That means a couple can bequeath or give $24.12 million without estate tax consequences. However, on January 1, 2026, in just under 3.5 years, the federal estate tax exemption reverts to one-half of the amount today, that is $6.03 million (in 2022 dollars) per person or $12.06 million (inb 2022 dollars) for a couple. The IRS has already provided guidance that any gifts to heirs made today will not be “clawed back” under any reduction of the exemption. What is more, if you make a gift today, that gift removes future appreciation from the taxable amount. This gifting strategy can be combined with other estate tax planning tools such as estate freeze techniques, discounting techniques, and can be dovetailed with other non-tax goals.
After a farmer takes an honest assessment, he or she can look at several options, such as renting out the farmland or enlisting the service of a farmland management company. After all, your rental income from your land won’t be worth as much if your heirs have to sell much of it to pay for estate taxes!you have to sell
Just remember to work out that first decision: What happens to the farm if I’m dead?
Once you work with an experienced estate planning attorney to create this basic framework, make a habit of reviewing it regularly.
You should, at a minimum, review the plan every two to three years and make changes based on tax or circumstance changes.
BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.
If you liked this article, “What’s the Most Important Step in Farm Succession?” read also these additional articles: Is ABLE Account the Same as Special Needs Trust? and Pay Attention to Income Tax when Creating Estate Plans and How Changes to Portability of the Estate Tax Exemption May Impact You and What Healthy Snack Is Best for My Long-Term Health?
Reference: Ag Web (August 1, 2022) “Who Gets What? Take This Important Estate Planning Step”