Unless Congress acts before Jan. 1, 2013, the federal estate tax exemption is set to drop from $5.12 million to $1 million while the tax rate is set to rise from 35 percent to 55 percent for estates valued over the exemption amount.
This is why farmers and small business owners should meet with an estate tax planner to devise a strategy for passing their estate to the next generation, attorney Will Thompson said when presenting an estate tax planning workshop at the 75th Annual Georgia Farm Bureau Convention.
"My encouragement to you is don't wait on Congress to come together and do something," said Thompson, an associate with the Macon firm James, Bates, Brannan & Groover LLP.
"Hit it head on by taking the time to meet with an estate tax planner to make sure your spouse and family are taken care of. There are several planning techniques to help mitigate estate taxes to make sure the younger generation benefits from your hard work.
" Having a current, properly drafted will is the first step to addressing estate taxes, Thompson said.
"Don't let your will grow old. It should speak to your wishes and lifestyle right now, not five or 10 years ago. A properly drafted will allows you to set aside assets to provide for your surviving spouse for her lifetime and choose who receives those assets after the surviving spouse's death," Thompson said.
Thompson said wills are a good avenue for allocating farm or business assets to children who work in the family business while providing other assets to children who don't.
"A properly drafted will allows you to avoid or minimize family confusion and disagreements," Thompson said. "There's nothing like money to make a family get frustrated with one another."
Thompson explained that one arrives at the gross value of an estate by first appraising everything in the deceased's name at time of death.
The gross estate generally includes one's home, land, equipment, vehicles, everything in a limited liability company, if the deceased owned the LLC, cash, insurance not in an insurance trust, nice jewelry, etc.
Liabilities are subtracted from the gross value of the estate to get the net estate value.
The deceased's federal estate tax exemption is subtracted from the net estate value to arrive at the taxable value of the estate.
If the deceased disbursed taxable gifts while living to family members above the annual exclusion amount of $13,000 (set to rise to $14,000 in 2013), such as property or cash, the amount of these gifts will be deducted from the estate tax exemption.
"After you subtract the federal tax exemption from the net estate, any amount greater than zero will be taxed at the applicable estate tax rate at that time and the federal estate tax is due in nine months," Thompson explained.
An analysis compiled by the American Farm Bureau using USDA data shows 664 Georgia farms would be subject to some level of federal estate tax at the current $5.125 million exemption.
If the exemption level drops to $1 million, 7,469 Georgia farms would be affected.
For a copy of Thompson's presentation email firstname.lastname@example.org or call (478) 742-4280.
Read more at http://www.gfb.org/