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Mistake #5: “I’m just going to copy what my neighbor did.”

There is no cookie cutter approach to estate planning, especially not for farmers. For some farmers, it might make sense to do some gifting during their lifetime in order to reduce the size of the taxable estate at death. This is an especially attractive option given the current Federal Estate Tax laws that provide each individual with a $5 million unified exemption, which can be used during lifetime or at death and is valid through Dec. 31, 2012. Many clients are making sizable gifts during this two year period and filing the required gift tax return to report the use of exemption. For other farmers, lifetime gifting might not be advisable. If the next generation will likely sell the farm, then their “basis” in the property becomes very important.

Careful analysis is necessary to determine whether the Estate and/or Inheritance tax saved by lifetime gifting is greater than the capital gains tax triggered by an after-death sale. It’s best if the estate planning attorney, accountant and financial planner are all involved in such analysis. It may also make sense to transfer the farm ground to a business entity first, such as an LLC, so that certain transfer restrictions can be put in place to accomplish the farmer’s goals. Some goals may include restricting property ownership to blood descendants; preventing or restricting future development of tillable acreage or historic green spaces; and providing protections in the event of a child’s divorce.

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.