Amanda Radke: A Cowgirl’s Perspective 1-14-13
The first week of January, Congress passed a tax compromise that averts the fiscal cliff and makes permanent the federal estate tax with an exemption of $5.12 million/individual (indexed for inflation) and a tax rate of 40 percent for amounts over the exemption.
Randy McKee, an estate planner from Sioux Falls, S.D., explains how the fiscal cliff decision changes the estate tax and offers advice to farmers and ranchers for estate planning.
“Today, here’s what the fiscal cliff shakes down to: every person has a $5 million lifetime exclusion. When a person passes away, you can own up to $5 million before there is any estate tax at all. The lifetime exclusion is also portable. With a married couple, you could preserve an estate of up to $10 million. It used to be that you had to have things set up pretty right to get that done. But, today, if one spouse only uses $2.5 million, the surviving spouse has $7.5 million. Anything above that, there is still a tax at 40 percent. Last year it was 35 percent but before that it was 55 percent, so 40 percent is an improvement.”
McKee believes the changes are good for estate planning.
“The generous lifetime gifting limits are still in place, as well, so it is easier to pass rapidly-growing assets to the next generation,” he said. “This good news is not a replacement for quality estate planning, however. There is still a lot to consider when it comes to transitioning the operation from one generation to another. Families still have to consider the most important aspects of estate planning, like protecting their assets from loss due to illness or long term care needs. Operators still have to be concerned with their retirement plans. Businesses still have to be concerned about the liabilities generated by doing business.”
For family farm and ranch operations, these considerations are all important. The old adage, “failing to plan is planning to fail.”
“One of the big problems that we face, is we don’t plan on something bad happen to us, but it sometimes does happen,” he said. “We need to prepare ourselves. None of us gets out of this world alive; we can either drop the ball or take a couple of steps and fix it. I’ve never understood the mentality of not planning; there’s absolutely no downside to planning, but the impacts of not planning can be huge.”
McKee has videos to help folks plan their estates. These videos can be viewed at http://www.FamilyVisionMatrix.com.
Although Congress has now passed a permanent estate tax exemption (indexed for inflation), $10 million still doesn’t go very far when it comes to the value of land, equipment and livestock in an estate. Many ranchers are fighting to get repeal of the death tax altogether to help save family farms. But, in the meantime, having an estate plan in place could help transition operations smoothly from one generation to the next.
I’m pretty open about the fact that I believe a full repeal is the only way to protect the future of agriculture, and I plan to work hard to make that repeal happen. It can only be done by picking up the phone and visiting with our elected officials in Washington, D.C. Write a letter to the editor, talk to your friends, keep up on updates and stay informed on this issue. Ranchers shouldn’t be taxed upon their deaths on land that has been taxed throughout their lifetimes; it’s as simple as that. ❖