NICK GOSNELL
Hutch Post
HUTCHINSON, Kan. — Roger McEowen, the Kansas Farm Bureau Professor of Agricultural Law and Taxation at Washburn University School of Law told Hutch Post that estate planning is especially important for those who want their farm businesses to outlive them.
"One problem is just simply not having done any estate planning and leaving it up to state law to dispose your property to death," McEowen said. "Well, that might be your estate plan, but if you want to transition the business to the next generation, that's probably not a good way to do it. Another problem is just thinking that I will leave all my land in particular in co-equal ownership to my kids. When I'm gone, I'll let them sort things out. Well, often that ends up in a judge trying to figure things out with a partition and sale action, because you may have some children that want to continue farming and others that don't, but they want cash out of the inheritance, and so that creates a natural problem right there that has to be solved."
It's also important to designate beneficiaries where possible, as then those assets can sometimes avoid some of the other estate issues.
"That would include retirement plans," McEowen said. "It would include life insurance. Pension plans, for example. Make sure you have those lined up correct with your intentions. Maybe you need a buy-sell agreement if you've got a farm business that, again, you want to transfer to the next generation. I could go on and on. There are just so many things that need to be considered, because we don't know how much sand is in the top of each of our hourglasses, and we need to get these things done probably sooner than later."
In addition, there could be some policy change coming if the Tax Cuts and Jobs Act provisions regarding estate tax are allowed to sunset.
"Sunset occurs at the end of next year on just about all of the provisions," McEowen said. "On the estate tax, we're going to have one more inflation adjustment on the basic exclusion amount. We're at $13.61 million right now. The projection is that's going to go to $14.3 million per person next year, and then in 2026, if Congress doesn't do anything, the projection is it'll be $7.15 million, because it readjusts down to $5 with an inflation adjustment. So we think it'll be about $7.15 million. So essentially cutting it in half."
The issue is that with increases in land values, farms with a lot of ground could pass those lower limits more easily than the current ones, possibly resulting in some need to divest some of the land to pay estate tax, if planning isn't done in advance to mitigate the changes.