Operating a farm always brings a fair amount of uncertainty, but with careful planning, you can transfer farm assets from one generation to the next, while minimizing transfer taxes to the greatest extent possible. This allows you to preserve the largest amount of assets for your heirs. While no two estate plans are the same, there are some standard procedures to follow when you engage in estate planning.
There are three different types of federal taxes that may apply when assets transfer from generation to generation. These taxes include estate taxes, generation-skipping transfer taxes, and gift taxes, all of which may or may not apply in your situation. Additionally, while some states have inheritance taxes, Michigan does not have an inheritance tax.
In terms of the gift tax, there is annual amount to each beneficiary that you can transfer without triggering application of the gift tax. For 2018, you can transfer $15,000 to as many people as you choose without them having to pay gift taxes. There also are lifetime gift tax exemptions for the total amount of gifts that you can give to one person during your lifetime, over and above the annual exclusion amounts. The lifetime exemptions for all three federal transfer taxes are now the same; the lifetime exemption is $5.6 million per individual, which translates into $11.2 million for a married couple. As you can see, with careful planning, you can easily transfer the family farm to future generations without triggering application of the federal transfer taxes. By taking full advantage of annual exclusions, you can transfer a great deal of a farm’s value during your lifetime without incurring these taxes. The goal is to have a remaining farm value at the time of your death which is less than the $5.6 million, which you then can transfer the remainder of the farm value upon death, without triggering taxes.
Dealing with the family farm is only one aspect of the estate and succession planning that you are likely to find necessary as you begin to age. If you are in this situation, we have the knowledge and resources to assist you. Call Legacy Law Center today and learn how our Michigan estate planning attorneys can advocate on your behalf.
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