There are some big mistakes that farmers can make. It is best to be aware of them and avoid following in the footsteps of others, according to Ag Web in “5 Estate Planning Mistakes You Don’t Want To Make.”
The estate exemption will only be this high for a limited period of time. When the Tax Act expires in 2025, the exemption will be back down to $5.5 million per person and $11 million for a couple. However, there is an election in 2020. There is no guarantee that the limits will remain in place until 2025.
The family is a bigger risk to the future of any family business than taxes. Blended families, stepparents, siblings and half-siblings and how family relationships work or don’t work is the bigger reason why family farmers, ranchers and business owners need estate and succession planning.
Second, people make a huge mistake in trying to treat their children the same. Fair does not always mean equal. Think about who is working on the farm, and who is not. Who is going to do a great job maintaining the family legacy, and who has already left to live in another state?
Third, you should not simply title your property so your kids and your spouse own it together and it passes to them when you die. It sounds nice and simple, but it’s a huge mistake. People think they want to do this to avoid probate, but it creates many problems. If you just add names on property and there is no bill of sale, you create a taxable gift. What happens if one of your children gets divorced?
Fourth, the plan to “sell off the farm when I retire” plan is a terrible tax burden to place on yourself. If you sell the last crop and auction off the equipment, there will be a big income tax bite. Farmers tend not to pay a lot of income taxes. They sell this year’s grain next year, and they deduct next year’s expenses this year. They buy equipment in December and then depreciate it, but then when you do a retirement sell off, you get all the taxes that you’ve been pushing away all at once.
Fifth is the one that dooms so many families, both far mers and non-farmers. You can’t copy your neighbor’s estate plan and hope it will work. Every family is different, and no matter how small your town, everybody does not know the exact details of everybody else’s business.
Reference: Ag Web (Jan. 15, 2019) “5 Estate Planning Mistakes You Don’t Want To Make”