by Ryan Conklin

With fall in full swing, the season of giving will soon be upon us. In recent years, I have been more proactive in my holiday gift-buying, resulting in a less hectic November and December.

Gift-giving can play an important function in farm succession planning. Depending on the unique goals and circumstances of each farm and family, gifting may be a significant factor, something used sparingly or a tactic that is a total nonfactor. Whether big or small, understanding the basics of gifting can help with future succession plan decisions.

The law surrounding gifts touches so many areas of a plan. It can apply to businesses, long-term care or Medicaid planning, land, liability management, estate planning, income and estate tax planning, and family law. Each subject has its own nuances, and the gifting of collateralized assets can create complications.

A legal gift has three elements:

By its nature, a gift occurs with no exchange of value between the recipient and the donor. If assets change hands from both sides, this is likely a sale.

For farm families, assets such as cash, equipment, land, livestock, grain, trucks and land are all common gifts. While not required, these gifts should be outlined in a written instrument. The document can detail the owner, the item to be gifted, the value and allow for written acceptance by the recipient.

What if a donor retains some rights to the gifted property? For example, this may include the right to use the property, right to live in a house or income rights. In this case, the gift might be deemed “incomplete.” Incomplete gifts can result in negative tax repercussions, create retained liability for the donor or issues for Medicaid qualification.

In terms of taxes, IRS rules allow for a taxpayer to give up to $18,000 per recipient per year, with an unlimited number of recipients. If a taxpayer exceeds the $18,000 figure for a particular recipient, the donor will need to file a gift tax return. In some cases, a person may gift an unlimited amount for a person if it is paying for medical expenses.

Large gifts of land, cash, business ownership or operating assets should be undertaken with caution and advanced planning. Such gifts may require a valuation of the asset and careful tax planning. Charitable giving is certainly a factor here, as many families seek to support organizations or achieve income and estate tax benefits.

Gifting can be a useful tool for accomplishing farm succession goals, but it should be approached in a tactful manner. Legal, tax, lending, insurance and financial professionals all play a part in completing a gift. Be sure to consult your succession planning team to maximize the benefits of gifting and control the downside.

Conklin is the lead attorney with Wright & Moore Law Co. LPA.