New tax laws mean new estate plans needed

New tax laws mean new estate plans needed
NASHVILLE, Tenn.—Farmers face many financial challenges when attempting to pass the family business to the next generation.

In recent years inheritance taxes, also called death taxes or estate taxes, have become less of an issue, and the new Republican Party tax plan passed in December doubled the individual exemption. But an agriculture law specialist told those attending the American Farm Bureau Federation annual convention that tax issues continue to be a barrier to succession planning.

“When you think about succession planning, the overall objective for many farm families that do have an heir or heirs interested in taking over the business for the next generation is the desire to keep the family farm in the family as long as they can,” explained Roger McEowen, Kansas Farm Bureau professor of agricultural law and taxation at the Washburn University School of Law.

The new tax laws are a big help, he explained, but tax codes are so complicated that they only solve a piece of the problem.

“The last major change in tax laws goes back to 2013. That’s when the federal estate and gift tax exemption was made permanent. Of course, it’s only permanent until Congress changes the tax law again,” he noted. Beginning in the 2018 tax year $11.2 million is the individual limit before federal estate taxes kick in, “double what it was last year.”

The federal estate tax law exemption was indexed for inflation in 2013, meaning it had risen to $5.2 million by 2017. But other taxes on small businesses had been creeping up, he said. The capital gains tax had increased from 15 percent to 20 percent. And the Affordable Care Act imposed additional taxes on small businesses like farmers. State income taxes vary across the nation, and two states still have a local inheritance tax. “I can show you cases were the total tax impact approached 60 percent, if not higher,” McEowen said.

“A lot of estate planning and succession planning nowadays is income tax, not necessarily estate tax planning,” he continued. Particularly under the new law, where the estate tax exemption is now $11.2 million per person. “Not too many people are going to be over that threshold. But everybody has income tax issues, or income tax basis issues.

“A lot of the planning prior to the changes in 2013 focused on how to keep assets out of the estate for tax purposes. Now it’s totally flipped 180 degrees. For the vast majority of people, the question is how to include things in their estate to get a basic step-up for their heirs.”

The best choice for farm families seeking to pass on the family farm continues to be consulting with a qualified estate planning and tax expert on a regular basis.

Media: Contact McEowen at roger.mceowen@washburn.edu or Norm Hyde, VFBF communications, at 804-290-1146.


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