Tax reform doubled the lifetime estate and gift exemption for 2018 through 2025. This means in 2019, you can gift during your lifetime or have assets in your estate of $11.4 million and not owe any estate or gift tax. Your spouse has the same amount. However, many states continue to assess an estate tax. Be sure to check on your state's rules.
This means farm couples worth $30 million or more won‘t owe any estate or gift tax. Discounts of around 30% (or more) reduce the value of land (or other assets) put into a limited liability company (LLC) or another type of entity. Gifts during your lifetime will shrink the amount subject to an estate tax.
Understand The Numbers
For example, mom and dad have farmland and other assets worth $30 million. They place the land into an LLC with a gross value of $20 million. This qualifies for a 35% discount ($7 million), dropping the estate valuation to $13 million. This drops their taxable estate to $23 million, which is about equal to their combined lifetime exemption amounts.
However, there is a chance the lifetime exemption will go back to the old numbers (or even less). The House has proposed a new bill that will make the exemption revert to the old law two years earlier. Some Presidential candidates propose making it even sooner or perhaps reducing it even lower (some would like to see it go to $3.5 million).
Let’s look at our previous example. If the exemption amount reverts to the old numbers, the heirs would face an estate tax liability of about $5 million. But if they make a gift of about $12 million now, no estate tax would be due.
Now might be the time to consider gifting some of your farmland to your kids, grandkids or into some type of trust. We normally like to have grain, equipment and other assets go through an estate so we can get a step-up in basis and a new deduction for the heirs.
However, farmland is not allowed to be depreciated. If it will be in the family for multiple generations, a step-up does not create any value anyway.
If your net worth is more than $10 million, now is a good time to discuss this with your estate tax planner. If you wait and the rules change, you could cost your heirs a lot of money.
Gifting Assets is Powerful
Remember you and your spouse can give $15,000 each year to as many people as your like in the form of gifts (not a total of $15,000 each year). This does not eat into your lifetime exemption. As a result, it is a smart strategy to take advantage of gifting each year.
For instance, if mom and dad have five kids, they can give $150,000 total without filing a gift tax return or eating into their lifetime exemption amount.
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