Several people have called in recent months asking whether they should do something drastic, like give their farm away now, “because the gift and estate tax may be a lot worse after the election!”

Why? When it comes to taxes, the platforms of the two major parties are very different. One proposes to raise estate taxes, eliminate the qualified business income deduction and raise marginal income tax rates. But is there reason to panic?

With respect to federal tax law, it typically takes a new administration most of a year to get any substantial change in place. But regardless of the outcome of the election, you should never act in haste and should rarely do anything drastic.

Hasty and drastic typically violate three important objectives. In my experience, the No. 1 goal of most people is to maintain as much control over their affairs as they can, for as long as they can. A second important objective, when estate taxes are involved, is to maximize the use of your tax exemptions. Third, hasty plans aimed at immediate tax reduction typically ignore other important planning opportunities, such as lawsuit and divorce protections and long-term tax planning.

Don’t just do something

As other elections have come and gone, farmers felt the urgency to “do something, anything” to reduce their estates. The most common mistakes I’ve heard about were farmers who deeded a substantial portion of the farm or gave shares of the farm business (corporation or limited liability company) to one or more children. Such gifts were reported to the IRS without gift tax due. If you do this, how would you violate the three important objectives?

First, such a gift precludes your having any further control of that property. What if a child makes bad choices? You have no power to protect what you gave. What if you need some of the income the gift generates? You’ve given it up. What if the family dynamics change and a different heir is the most appropriate successor? You can’t readjust things.

Second, the gift of the land or stock is reported as a gift at its full value. The amount you could leave tax-free on death is reduced by the amount you gave away while living. If you gave away $2 million worth of property today, it means at your death you can give $2 million less than you otherwise could have. So, if you use the exemption now, you won’t have it later.

Also, by giving it away today, your child never gets a stepped-up basis. So if you are going to use up some of your death tax exemption by making gifts while living, look for leverage. With carefully constructed gifts using trusts, you can reduce your estate by two to five times the amount reported. With leverage of three times, your estate will be $6 million smaller, but you only reduced your death tax exemption by $2 million.

Third, the gift of land or stock to your child exposes it to every risk in the child’s life, such as a divorce, lawsuits and estate taxes. If your son keeps the property separate from his wife, it creates tension, but if he adds her name to it, she could take half in a divorce. If the UTV accident on your son’s property results in a lawsuit, whatever you gave him is now at risk. When your son, successful farmer that he is or becomes, starts thinking about estate tax planning, he must count everything you gave him as part of his estate.

Taking the time

If you take the time to explore various ways to give assets to your son or daughter, you will learn practical ways to preserve more control, multiply the effect of your gift and estate tax exemptions, and protect the assets that end up with your children from the life risks they will face, including the one (estate taxes when they die) you are worried about today!

A client’s son asked me this week, “Why doesn’t everyone do this?” It seems that most people won’t take the time to learn what is possible. No one wants to think about death. Then something big scares them into hasty, drastic action. After that, they can’t undo what has been done.

If you know you need to do planning, you should start immediately, but not because of an election. Start now to give yourself as much time as possible to maximize the benefits to yourself and your loved ones.

Ferguson is an attorney who owns The Estate Planning Center in Salem, Ill. Learn more at thefarmersestateplanningattorneys.com. The opinions of this writer are not necessarily those of Farm Progress/Informa.