By Brian Hefty

Estate planning is now one of the top 5 issues in agriculture.  Thanks to high yields and good commodity prices, most crop farmers have done well in the last decade.  With higher land values now, we hope you have a valuable estate you can pass on to your heirs, but how much of that will Uncle Sam get, rather than your heirs?

Here’s the problem:  Today the exemptions for federal estate taxes and gift taxes are $5.12 million per person.  Beginning January 1, 2013, federal estate tax & gift tax exemptions are slated to be only $1 million per person with tax rates as high as 55% on anything over $1 million.

Every estate planner will tell you there are two big decisions you have to make:

  1. Who is going to get your assets?  Only you can decide this.
  2. How can you minimize taxes?  This is where you need to learn more so you can feel confident in the ability of your estate planner and that person’s recommendations.

I am not an estate planner, so please be sure you talk to your tax accountant or other professional before you make decisions for your operation.  However, I have been studying this and working on various plans over the last few years, and there are a few things I’ve learned:

  • If you have a large estate, you may want to take advantage of the current gift tax laws to move some of your assets to your heirs.  Again, beginning January 1, 2013, estate tax and gift tax law is scheduled to change dramatically.
  • Even though the federal exemptions are currently high, state estate tax exemptions are much lower in many states, including Minnesota, Oregon, Washington, Illinois, Ohio, and several others.  In other words, you may not be able to gift away a big chunk of your estate without tax consequences in these states.
  • Several states, including Iowa and Kentucky have state inheritance taxes.  In Iowa, for example, you can leave your estate to close relatives without incurring this tax, but if you leave your estate to an LLC, for example, your estate may pay the tax.
  • In addition to the current $5.12 million lifetime gift exemption, did you know you can ALSO gift up to $13,000 per year to any individual PLUS college tuition PLUS qualifying medical expenses?
  • If you put money now in an Intentionally Defective Grantor Trust (IDGT), did you know that the earnings of the trust can be used to buy more of your assets while you still pay the income tax on the earnings?  This can dramatically enlarge the amount you can transfer tax-free to your heirs.
  • By putting your assets in a trust, your estate will not be subject to probate, if done correctly.
  • Keep updating your plan.  Each year there is a lot of change – the value of your estate, tax laws, the number of heirs, etc. which all impacts what you may or may not want to do.

If you haven’t done anything with your estate plan yet, we strongly encourage you to work on it.  At our Scottsdale, AZ Winter Workshop on Feb. 15, 2013, we will be discussing estate tax planning in more detail for part of the day.  This will not replace the need for you to spend some time with a professional financial advisor, but there are a lot of things we’ll address to help you better understand this important issue, whether you’ve got a solid plan already or if you’re still in the thinking stages on your estate plan.