A common question I am being asked is how the upcoming election could impact your farm estate plan. My response is: (1) Do you have a written estate plan? (2) Do you know what it says? and (3) Can it weatherproof the upcoming election, or any presidential election for that matter?
Elections, especially presidential elections, can bring significant change in tax and estate policy from Washington on down to the local level. Your estate plan needs to be written in such a way to withstand dramatic policy changes. A versatile and well thought out plan removes the concern over what tax laws may be in the future.
Current exemptions could change
Some people believe estate planning is only for the super wealthy. If this is true very few need an estate plan as the current federal exemption is $11,580,000 per person and $23,100,000 per married couple before estate tax becomes a concern.
Here are some considerations for you and your estate plan:
Simple planning vs. traditional planning
Simple planning leaves all assets to your spouse. Traditional planning leaves assets to your children at the first death but the income from those assets to your spouse.
Traditional planning was more popular when we had significantly lower federal estate tax exemptions. Why? You can shelter future growth of the assets left to your children from being subject to tax on your spouse’s estate.
This traditional planning is not used much today due to the current high exemption levels. However, truth be told much of the focus from the families we consult with is from all the “non-tax” concerns and protecting our most prized possession (farmland!) from things that can go wrong: claims from lawsuits, bankruptcy, second marriage, and nursing homes, for example. It is more difficult to manage against these non-tax concerns with simple planning of leaving everything to your spouse. Simple plans can sometimes lead to complex issues later.
The advanced planning we see from estate tax specialists today can provide the best of all worlds – leaving our surviving spouse with income and control while protecting assets from all that can go wrong. Asset protection is the new buzz word with many families I work with who want the assurance their assets will pass to the next generation and stay in the family.
With this in mind, all farm families should be reviewing their estate plan, not just the super wealthy.
In addition to giving your spouse the income, control and asset protection, advanced planning offers income tax planning, estate tax planning, and flexibility to choose which assets should be held where, depending on the income and estate tax laws at that time.
This removes the need for updating your estate plan just because tax laws change.
If you have an advanced plan it most likely contains words such as revocable trusts, Clayton QTIPs, or disclaimer planning. Sometimes these are perceived as unnecessary or too complex, so folks steer towards simple planning. However, these advanced planning strategies can actually lead to simplicity later for your spouse and heirs.
If uncertainty over the upcoming election prompts you to review your current plan, then great. I encourage you to consider what is important to you and your family farm and what “non-tax” events could potentially go wrong by doing nothing. If you desire help in understanding the options available to you, please reach out to any of us at Farm Financial Strategies for an estate plan review.