Are you in a panic about the tax law changes being debated in Washington? One proposal includes reducing the death tax exemption to $3.5 million. Illinois farmers have lived under a $4 million state exemption for many years, so if you are thinking of a threshold at which you need estate tax planning, I’ve got good news: It won’t change much.
Let’s look back at a few points you may remember reading:
• November 2019. With the Illinois exemption of $4 million, a couple with a farm worth around $16 million would incur Illinois tax of around $1.2 million — even after “A-B Trust” planning. But with more comprehensive planning, even larger estates could avoid all estate taxes.
• October 2020. If your estate is $5 million, without proper tax planning, Illinois will collect $285,700 — and nothing in the 2020 election was likely to change that.
• May 2020. If you have an estate larger than the $4 million Illinois estate tax exemption and you want to avoid those taxes, you needed to act. This perfect opportunity arose from depressed land prices and unbelievably low interest rates.
• December 2020. Legal wrangling over the presidential election and the Georgia Senate election were still up in the air, and farmers may have felt stress — but less so if they had proactively planned their estate. And there are more reasons than taxes to engage in estate planning.
• February 2021. Procrastinating in hopes of better tax law is “letting politicians control your farm.” If you’ve built a foundational plan, as tax law changes, any attorney worth their salt will have a systematic process to provide regular updates.”
Then and now
None of this is new. Back in 2016, with potential tax law changes looming, we described the complicated steps involved in transferring large estates to minimize estate taxes and warned there is no quick fix — and time with your attorney may be more important than days you spend in the fields.
Truth is, the changes now proposed in Congress are far worse than what was pending in 2016. If your estate is over $4 million (or $8 million for a married couple) and you haven’t already planned, you are in a bind. The planning strategies that get the results you need require months to complete, and proposals now being debated would prohibit those strategies effective immediately upon the law’s passage. Knowing that, you will be tempted to take “hasty, drastic action” that you may come to regret, as we cautioned here last August. Don’t start just because of an election. Start now to give yourself as much time as possible to maximize the benefits to yourself and your loved ones.
Good advice bears repeating: Seek professional advice immediately. But let me caution you; experts at this sort of work are busy updating plans for clients who had already laid proper foundations.
If you are not able to find the expert who can act quickly enough — or if, when you read this, the changes in the law are so imminent as to preclude the strategic action you should have taken long ago — then the best advice might be that of Rudyard Kipling: “If you can keep your head when all about you are losing theirs ….”
Resist hasty action. Remain calm, swear off procrastination and commit yourself to thorough, systematic planning as soon as the dust settles a bit.
Attorney Ferguson 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.