In agriculture, timing can make a significant difference in the success or failure of your operation. Even if you believe that you have timed it well, the Lord can throw a twist into that timing by providing you with unexpected temperature shifts or moisture — or the lack thereof — changing the future outcome.
Even though there are many variables, you still use your knowledge, experience and intellect to attempt to apply the best timing to the situation to achieve the best outcome.
Are you applying that same thought process around the future legacy of your operation? One of the critical mistakes people make when planning for the transition on their death is to focus only on what the situation and environment is today.
Many professionals make the same mistake when providing advice on the subject. A constantly changing environment is the unfortunate reality that you face in this area. Failure to recognize it is a mistake.
With the exception of the short time periods in our nation’s history when there was no death tax applicable, we are currently in one of the most favorable death tax environments ever. Many individuals and their advisers have taken the approach that because the current favorable environment would not expose your family to taxation upon your death, that an investment in planning around the issue is not warranted. On the surface, this appears to be a high-quality thought process. But is it?
Tax changes ahead
The reality of a favorable tax environment cannot be long-lived. The outcome of the 2016 national election clearly demonstrated a significant divide between those who believe in a free enterprise system and those who believe in a socialist model of governance.
While the divide in opinion is significant, the number of votes necessary to push the majority one way or the other is not. The likelihood of increased taxation in the future is a present reality. Many believe it’s only a question of timing. Just look at the numbers.
While the Republicans have reduced taxation, they have not reduced spending. As a result, the public debt continues to skyrocket. Without a significant reduction in spending, the debt will have to be serviced and paid in the future.
According to usdebtclock.org, the current public debt obligation exceeds $32.8 trillion. This includes $23 trillion in federal debt, plus state and local government debt, plus all the unfunded pension liabilities of government agencies and entities. This amounts to $266,838 per individual taxpayer, or $533,676 for a married couple. It is alarming, and it should be a conversation around every dinner table in the United States.
No one, unless they are planning on filing bankruptcy, could run their household budget in this manner. Our nation (you and I) will have to pay this debt! While many of the current presidential hopefuls believe that taxing the super-rich is the answer, the mathematical reality is that even if they took all their assets and income, it would not solve the problem.
The unfortunate reality is that the only way to repay this debt is to tax the middle class, and death taxation throughout our country’s history has been a resource to raise revenue when our country was in trouble.
The numbers are unsettling, but what can — or should — you do?
First, you need to face the brutal reality. Taxation is going to increase in the future.
Second, you should plan as if taxation is going to go up in the future, not based upon the current favorable environment. The current environment provides opportunities to avoid paying the potential increase in tax in the future. Plan in the favorable environment; don’t wait until the environment changes and the opportunity is lost.
You don’t wait until your equipment breaks to maintain it; you anticipate potential issues and repair them before you are in a jam. You don’t wait until the conditions are perfect to plant your crops; you use your knowledge, intuition and the available information to plan for the best possible situation.
You should do those same things when you think about estate planning. Look ahead and take advantage of the current opportunities to maximize the outcome for your family.
Dolan, an attorney, helps farm and ranch families achieve comprehensive estate, succession and legacy planning objectives. He is the principal of Dolan & Associates, P.C. in Brighton and Westminster, Colo. Learn more on his website, estateplansthatwork.com.