Consultant Urges Farmers to do Estate Planning Early

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Posted: Saturday, February 23, 2013 3:30 am
By Barry Amundson, Reporter 
Link to Tri State Neighbor Article 

Although complex, estate planning needs to be done to help farmers and ranchers save on taxes and help pass the farm onto the next generation.
Consultant Dave Thompson of Denver, who spoke earlier this month in Watertown, S.D., at the Watertown Winter Farm Show, said what’s most important is for a family to sit down, ask the hard questions and take time to plan.

In other words, don’t procrastinate.

Thompson, who works for New York Life Insurance Co. and is a 30-year veteran of estate planning, said besides simply putting it off, farmers don’t deal with estate planning because they think it’s too complicated, they don’t like facing mortality or they might think it’s not necessary.

With many students from Lake Area Technical Institute in Watertown attending the meeting, Thompson said he wished they would go home and tell their parents to “get on the planning bus. The sooner you start, the better off you will be.

“It’s a lot easier to do it, to have the conversations when you are alive,” he said.

The problems can turn ugly or be disastrous for family relations if it’s delayed, according to Thompson.

The consultant said his company likes to take a team approach to planning by involving a farmer’s own tax person and lawyer. He said the company also has its own lawyers and tax advisers who can help in the decision making.

“It’s good to get second opinions,” he said.

Often, the conversation starts with many questions, including who’s going to be the successor on the farm, how to be fair to all family members, what are the assets, what are the assets worth, who’s name is on the deeds and how will the property be transferred.

For many farmers, he said, the farm itself is the biggest asset or portion of the estate.

Congress raised the estate tax exemption in the tax bill passed and signed Jan. 2. It is now, indexed for inflation, set at $5.25 million per person for 2013. Couples, therefore, can exempt as much as $10.5 million from estate taxes for this year.

The exemption also was made permanent and remains portable, which means that an unused exemption of a first-to-die spouse may be used by the surviving spouse’s estate.

However, for estates over the $10.5 million mark, Congress raised the tax rate from 35 percent to 40 percent. That’s why with farmland values zooming up, planning needs to be done, Thompson said.

An audience member noted that average farmland values in the Watertown area had jumped from about $3,000 per acre not too many years ago to about $7,000 now.
In many other farming areas, the land values are much more than that, so with other assets, the $10.5 million mark easily can be reached for many operations.
Thompson said there are a variety of strategies to help with estate planning to reduce potential tax problems.

One popular estate equalization move, he said, is if a son or daughter is taking over the farm, have the farmer purchase life insurance and have that and other assets or cash go to the other children. If set up properly, it wouldn’t be included in the estate, Thompson said.

Gifting property or cash to children is another strategy. He said by gifting, it can be taken out of the taxable estate and moved to the other side of the tax fence.
Thompson said the annual gifting tax-free exemption was raised for each child to $14,000 per individual or $28,000 for a couple.

Thompson said tax-free gifts also can be put into a life insurance irrevocable trust, which is another tool that can help benefit nonfarming children as well.
Yet another tool, Thompson said, is to have life insurance set up to pay estate taxes so it doesn’t have to come out of children’s checkbooks when the estate is transferred.

Other procedures that farmers should worry about are updating wills, establishing financial and health-care powers of attorney and creating living wills.