No matter what stage you may be at in life, at some point you’ll likely want to retire. Part of planning for retirement is also planning for your estate and what will happen when you are no longer able to be in control of your farm and the assets you worked hard to enjoy.  

Farmers are in a unique situation, since many live where they work and want to ensure that their farming or ranching operations are in safe hands for the next generation. Knowing where to start and what steps to take to ensure your future will put you and your family at ease. 

We talked to Andrew Knutson, attorney at law, to answer some of the biggest questions people have as they plan for the future of their farms as it pertains to changes in tax laws in 2021. 

New for 2021

With the estate tax laws that are in place, the current threshold for tax exemptions is $11.7 million for an individual and double that for couples. Anything over this amount is taxed at a rate of 40%. 

This exemption is set to expire in 2026 but with democrats in control of the executive and legislative branches of government this could happen as soon as this year.

Congress and the president have the ability to change this amount prior to 2026 with a vote or by repealing the Tax Cuts and Jobs Act put in place in December of 2017. This could take place within the first year of the Biden Administration and changes could be made retroactive to January 1, 2021. However, as Knutson suggests, it is more likely that it is more likely to start January 1, 2022.

He suggests that anyone who has land as assets with a fair market value more than $10 million per couple and $5 million per individual should meet with their estate planning as soon as possible to prepare for upcoming changes.

“This year presents a unique window of opportunity to make large non-charitable gifts, whether those gifts are to a child, grandchild, trust, or some other person or entity,” Knutson said. “This is due to the fact that the rates for Federal Gift Tax, Federal Estate Tax, and the Federal Generation-Skipping Transfer Tax are relatively low, while the amount of tax exemption available for those taxes is extraordinarily high. Also, due to low interest rates right now, it’s also a good year to make certain kinds of sales” 

As Knutson pointed out, South Dakota doesn’t have a state gift tax like other states. He says this is even more of a reason to give to a trust that qualifies as a South Dakota trust. 

“There are a lot of strategies to mitigate or eliminate estate tax, but you have to act to utilize these strategies.” 

Consulting an expert

Having questions is a natural part of the estate planning process. Don’t let the fear of making mistakes hold you back from making the best decisions.

An expert in your corner can help make the process easier for you and your family. Be sure to reach out to your financial and legal teams to help you in your planning process.