May 26, 2021

Tax Talks

Estate Planning in Uncertain Times

By: Dario Arezzo


Every so often, there are years when estate planning becomes the hot topic among farmers. With several proposals circulating in Washington, D.C., it appears that 2021 will be one of those years.

Today, each spouse has $11.7 million to use either to make gifts or pass assets on to the next generation through inheritance. All current proposals would reduce this number, with some retroactive to January 1, 2021.

There are also discussions about making gifts of appreciated property taxable. The needle to thread for estate planners is to find ways to allow farmers to use their $11.7 million allowance if it remains available, while also following the estate planning Hippocratic Oath of “doing no harm” should something change.

One option that could be considered is for farm families to make use of a disclaimer. Under the tax code, there are ways in which the donee, or person receiving the gift, may disclaim it. In other words, the receiver of the gift can choose not to accept it. For example, the donee is permitted to disclaim a gift within nine months of the date of the gift. If a farmer made a gift to a member of the next generation in November, that individual receiving the gift would have until July 2022 to disclaim it. In that case, it is likely the gift would be deemed to have never occurred and return to the farmer making the gift. With proper planning, disclaimers can also be utilized in the context of trusts.

The bottom line is that farmers should begin getting their ducks in a row now as they consider any major estate planning strategies. Coordination between farmers, their accountants and attorneys will take time to structure and implement. As the adage says, if you have six hours to chop down a tree, you should spend the first four sharpening the axe. And the disclaimer provisions could be a tool to reset certain estate plan changes if the final estate tax provision rules don’t work well with the revised estate plan.

Tags: succession planning, estate planning, taxes, tax planning, legislation

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