It can be easy to lose focus on succession planning when you’re worried about cash flow. But, according to Polly Dobbs of the Dobbs Legal Group, a succession planning expert and attorney, estate planning is not something that can be procrastinated.
“Unfortunately, nobody can tell me exactly which day they're going to die and how much they're going to be worth on that day,” she told AgriTalk host Chip Flory. Because of the unknown, succession planning is crucial. “If there is that next step in your operation that's really a blessing and it needs to be done carefully. Doesn't necessarily have to be complicated but it needs to be a planned and executed.”
According to Dobbs there are two estate planning elements farmers really should consider at the end of the year.
One is income tax. “This is the time of year when farmers need to hunker down with their CPA and decide exactly what they're going to do to manage the income tax situation,” she said adding that most farmers are really good at showing very little taxable income. “That is a very careful shell game that that needs some income tax advice from an accountant from a CPA, because there are a lot of times when it's a good idea to show a little bit of income, pay a little bit of tax.”
Otherwise it’s easy for the income tax deferral wave to turn into a tsunami when you reach retirement. “Then we've got a real tough issue,” she said.
The second element is annual gifting. “Annual gifting is a big of the succession plan of whittling down the ownership of certain assets,” Dobbs said. “A lot of times it's land perhaps land that's inside an entity like an LLC and then we're transitioning ownership of that land to the next generation a little bit at a time, a little slice at a time.” For 2018 and 2019 individuals can give $15,000 without touching their estate tax exemption. Dobbs said for years that number was $10,000 but as part of the Tax Cuts and Jobs Act it was adjusted for inflation to $15,000.
“Frequently that’s something that's getting eked out at year end and sometimes it involves appraisals evaluations. So, it takes a little bit of work to figure out how many units of a landholding LLC is worth $15,000 and it might be with discounts that you're really moving more like the $30,000 - $35,000 per person because of different valuation discounts that might come into play,” she said.
Learn more from Dobbs at the 2019 Top Producer Summit January 15-17 in Chicago. She will be speaking at the Farm Journal Legacy Project Conference, the Executive Women in Agriculture Conference and the Top Producer Seminar. REGISTER HERE.