Whether you’ve spent a lifetime building your farm or ranch or you’re just starting out, you’d rather not see your legacy gobbled up by inheritance taxes. Not to worry. You can take smart steps now to ensure a smooth transition. Here’s what you need to know to keep your farm or ranch in the family and avoid big tax penalties for your heirs.
What Is the Federal Estate Tax?
Beginning in 1916, the federal estate tax has applied to the transfer of property at the time of death. However, it only applies to estates with assets over $5.49 million. The combined exemption limit for married couples is $10.98 million. If your assets — farmland, equipment, equity, retirement funds — total more than the exemption limit, your heirs may be required to file a federal estate tax return and pay a 40 percent tax on the amount over the limit. Generally, the federal estate tax must be paid in cash within nine months of a death. This can be difficult if an estate consists of mainly non-cash assets.
Which States Have an Estate or Inheritance Tax?
Fourteen states in the United States have their own state estate tax, including Minnesota. Additionally, six states require an inheritance tax, including Iowa and Nebraska.
How Can I Reduce or Avoid an Estate or Inheritance Tax?
There are ways to minimize the impact of taxes on your estate if you believe it is worth more, or will be worth more, than the estate or inheritance tax exemption limit. A few tax breaks for farmers include:
- Giving gifts to your relatives. As of 2017, the maximum amount you can give to someone without it counting against your lifetime exclusion amount is $14,000. A gift of this amount can be given to as many people as you choose. Gifting land (within the limit) to others can also help limit tax implications.
- Creating a trust. Properly structured irrevocable or bypass trusts are options for legally protecting your assets. You may also create a charitable trust.
- Spending it. If you’re worried that your assets may be worth more than the federal or state limit and you’re financially stable for the rest of your life, enjoy your extra wealth by spending it now.
Why Create a Farm Succession Plan?
You’ve worked hard to build your family’s farm or ranch, and it’s never too early to start thinking about succession planning. A succession plan can ease the complexities — legal, financial, emotional — of transferring your property.
We know it can be complicated, but you don’t have to do it alone. Start building your team, including your Farm Bureau agent, who can help discuss the succession process and create a strategy to help ensure your farm or ranch remains in your family. Get started today with succession planning.
Neither the Company nor its agents give tax, accounting or legal advice. Consult your professional adviser in these areas.