A Permanent Estate Tax?

Published on: 16:18PM Apr 30, 2013

Fotolia Farm RoadFrom Legacy Moment (04/26/2013).
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Well, it's permanent until they can change it. The estate tax, that is...

There was a collective sigh of relief, if not surprise, in January when the estate tax exclusion and the gift tax exemption amounts remained at $5 million. In the same measure, the estate tax was permanently set at only 40% in the beginning of 2013. Although not a perfect solution, the law allows farm families to plan for succession, anticipate the effects of the estate tax and create plans to eliminate or mitigate this onerous obligation.

But that was then. President Barack Obama's budget proposal for 2014 now seeks to use the estate tax to raise revenue by increasing the tax rate from 40% to 45%, lowering the exemption amount to $3.5 million and eliminating the inflation index, which currently applies to the exemption/exclusion amounts. Beyond that, the administration's proposal will eliminate other estate or value freeze strategies, ensuring that an assets appreciation will be subject to tax.

Keep in mind that any changes to the estate tax are only proposals at this point. It's prudent to focus on what a farm owner should do to ward off the negative effects of the tax, such as:

1. Commit to planning. Nobody wants to give Uncle Sam any more than is necessary. With enough time and some compromise, a family can minimize or eliminate an estate tax obligation.

2. Be open to options. Each situation is unique. Like matching puzzle pieces, the tools and techniques used in succession planning, especially as it applies to estate tax strategies, are not always off-the-shelf.

3. Remain flexible. Nothing is "once and done." Estate tax law will change; so will your family, your farm, the economy, commodity markets, etc. Annual reviews and continuous improvements are part of a comprehensive planning process.

4. Involve others. Through our respective communities, we have access to many other people, such as family farmers, professional advisers and subject matter experts. Learn from their experience; it might save you time and money.

5. Start now. Too many people might think, "I'll wait until [some triggering event: fill in the blank]." Or, "I'm too young." Or, "It might cost too much money." Or, "They're not ready yet." Or, any other excuse a person might gin up to postpone planning.

News & Resources for You:

Read full article: 2014 Fiscal Year Estate Tax Proposals (WealthManagement.com; 04-22-2013; Miles C. Padgett and Donald D. Kozusko).

 Remember: Estate planning is just one component of a comprehensive succession plan.

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