Farm Estate Planning – Back to the Future is Now
Seven Steps to Take Before Time Runs Out
Bobby Medlin, CPA
Family farming operations are a vital part of America; more than at any point in history.
Will your family’s operation survive for future generations or will challenges transferring ownership to family members be the end of the legacy you have worked hard to create?
Recent and upcoming changes in tax law both provide a window of opportunity for farmers and a threat to survival for family farms. The 2017 Tax Cuts and Jobs Act (TCJA) temporarily doubled the basic estate tax exclusion from $5 million to $10 million per person. The exclusion has since been indexed for inflation and currently stands at $12.92 million. While this may seem like plenty of cushion for many operations, time may be running out to take advantage of this increased flexibility in planning.
First, the increased exclusion sunsets at the end of 2025 and reverts to one-half these increased amounts. Using the increased exclusion does not actually require dying and having an estate. Many strategies exist for immediate transfer of ownership stakes in your operation prior to the end of 2025. The ability to transfer ownership via gifts to family members, including at a discounted usage of the exclusion amount, can leverage the benefit of the expanded exclusion amount.
Second, recently-proposed legislation, if enacted by Congress, would accelerate the end of favorable TCJA provisions. While proposed legislation isn’t law, it often signifies what will soon become law and should not be ignored by the ag sector. Don’t be lulled to inaction by thinking estate taxes will not be a factor to the survival of your family farm.
Equally as important as taking advantage of planning windows that could soon close, is planning ahead to avoid tax disasters which you cannot see yourself.
There is no one-size-fits-all solution to family farm survival. What steps should be taken now to protect your future generations? Steps you can take to keep from running out of time include:
- Accept it is better to plan ahead now rather than to “let them worry about it when I die”.
- Have intentional, open communication with members of your family about your farm’s future.
- Keep excellent financial records, including annual comparative financial statements and an accounting system kept up to date monthly.
- Have an annual, pre-tax time review with your tax preparer each fall to develop strategies which make sense for your operation with respect to current laws and current year farming results.
- Assemble a planning team consisting of an estate-planning attorney, a CPA familiar with agriculture and with estate planning, your banker, and a financial planner.
- Set planning goals and timelines to create urgency and priority for your assembled team
- Involve your family members in the six steps above.
TCJA provisions are temporary, and extensive while they last. The expanded basic exclusion amount is only one aspect of planning. Beyond the scope of this article are numerous facets of tax law which you can only benefit from by intentionally pursuing, before time runs out.
Bobby Medlin, CPA is a Moniteau County farmer and the founder of Bobby Medlin CPA Group. Bobby Medlin CPA Group is comprised of a team of professionals which provides tax planning, accounting services, estate planning, and consulting services to businesses and their owners, with an emphasis in agriculture.
www.bobbymedlincpa.com [email protected]