Farm families seeking to avoid large estate tax penalties have several options available, explains Paul Neiffer, a CPA and partner at CliftonLarsonAllen.
“The lifetime exemption continues to be indexed to inflation. For 2014, it was $5.34 million. Now, it’s $5.43 million, they just sort of switched the three and the four,” says Neiffer, a Top Producer columnist and AgWeb.com’s The Farm CPA blogger.
“So for a married farm couple, they can be worth $11 million almost—actually, it’s a little bit over $11 million, it’s getting close to $12 million now—and not owe any federal estate tax. That almost $12 million [figure] is after appropriate discounts. If mom and dad have put their farmland into an LLC or some type of limited liability entity, really they could be worth close to $20 million as far as gross value, and we could get them down to where they don’t owe any federal estate tax.”
Meanwhile, larger operations might pursue several strategies to limit liability.
“What we deal with more when we’re doing estate planning is if they’re not going to owe any estate tax, we want to run those assets that have a low cost basis—farmland that was bought 50 years ago for $250 an acre and it’s now worth $12,000—we want to run that through the estate so we can get what’s called a step-up in tax basis,” he continues.
“When their heirs, if they ever decide to sell it, instead of paying tax on $12,000 of gain or $11,000 of gain, they’re not paying any tax at all. If they’re over that level—if, say, they’re worth $30 million or $40 million, which these days that’s not a lot of farmland in Illinois or Iowa, then maybe we want to do some gifting during lifetime, run some assets through the estate and so on. It’s a little bit of a teeter-totter [as far as] which is best.”
The succession-planning interview with Neiffer continues in the video below.