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Down on the Family Farm: How to Avoid Five Common Estate Planning Mistakes (Part 3 of 5)
Posted in Estate Planning

I’m a farm girl and an estate planning attorney. So naturally, I’m passionate about helping farm families efficiently transfer ownership of their land, buildings and equipment to the next generation. In this five part blog series, I’m exploring several common examples of estate-planning-gone-wrong for farmers. Read on as I address one of the most common mistakes I hear when counseling farm families in the estate planning process.

Mistake #3: “I’m doing nothing because I’m worth less than $5 million,” or the similar reasoning: “Because the wife and I are worth less than $10 million.”

Most farmers are land rich and cash poor with little to no estate planning in place. This situation is a ticking time bomb that will explode into a liquidity problem after death when it’s time to pay Indiana Inheritance and potential Federal Estate Taxes. Many farmers keep a “dirt savings account” and do not have any other savings or investment accounts. As the value per acre of our Indiana tillable land continues to increase, the bottom line on the farmers’ balance sheets skyrockets, and most aren’t aware of the tax problems lurking at their death.

Farmers are generally familiar with the Federal Estate Tax; there are numerous articles addressing this topic in farm journals. However, most are unaware of the potential hit the Indiana Inheritance Tax will give to their children. Our current federal laws allow each decedent to pass $5 million of assets free from Estate Tax; a married couple can pass $10 million. However, our Indiana Inheritance Tax allows only a $100,000 exemption per lineal descendant (with tax rates between 1 percent and 10 percent). And as for the daughter-in-law I mentioned in Mistake #2? She only gets a $500 exemption (with a tax rate between 7 percent and 15 percent).

Let’s consider an 800 acre farm at $6,000/acre (What’s farm ground going for in your county? I’ve heard upwards of $9,000!), which would be worth $4.8 million. This would trigger no Federal Estate Tax under the current law, but assuming that the farmer leaves the property equally to his three children, there would be a $276,750 Indiana Inheritance Tax bill due after death. This farmer has all his savings in the dirt and no liquidity available to write this check to the Indiana Department of Revenue after death, which will inevitably cause problems for his children.

Remember to check back tomorrow to learn about another common estate planning mistake I often hear: “I want to treat all my kids exactly the same.”

Estate planning is important for all families and business owners, but it is crucial for farmers. If you have questions about the role estate planning plays in your family farm, please contact a member of Bingham Greenebaum Doll LLP's Estate Planning Practice Group.

Did you miss Mistake #1? Catch up here.

Did you miss Mistake #2? Catch up here.

Read the next post in the series >>

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