Rhonda Brooks
March 15, 2022
Farmers who take advantage of current estate/gift tax laws can make sure more of their hard-earned dollars go to family and friends and not Uncle Sam.
That was a key message from Polly Dobbs, owner of Dobbs Legal Group, Peru, Ind., and Paul Neiffer, a certified public accountant and principal with CliftonLarsonAllen LLP, to farm families attending the 2022 Top Producer Summit.
The exemptions addressed here went into effect Jan. 1, 2022.
Dobbs notes that upon a farmer's death, up to $12.06 million can be passed on exempt from federal estate tax. A married couple can pass $24.12 million.
Another option: while living, you may give away up to $12.06 million of your assets ($24.12 million if married) exempt from the federal gift tax, reducing the amount of your exemption remaining at death.
For estates or gifts in excess of this exemption, the maximum tax rate is 40%, Dobbs adds.
Generosity in Your Lifetime
If you want to give away a chunk of dollars to family and friends while you’re living, this is a great time to do so.
“The annual gift tax exclusion is $16,000 – to as many individuals as the donor wishes – without reducing the donor’s $12.06 million estate tax exemption or triggering a gift tax,” Dobbs says.
For years, Dobbs says the annual gifting amount without taxation was “stuck” at $10,000 per person. The new amount has been indexed to inflation.
“It’s $16,000 per person, so this is very powerful,” Dobbs says. “It's (for) during your lifetime, so you can give away a lot of your wealth by using just the annual exclusion, and you still have the lifetime exclusion.”
A married couple would have $32,000 to give away per person, Dobbs adds.
“I tell couples, you could stand on the corner with your joint checkbook and hand out $32,000 checks to strangers walking by on the street,” she says. “It's all sheltered by annual gift tax exclusions, and you're reducing the size of your estate, and you haven't even tapped into the big number.”
Act Soon
Dobbs says to check the laws in your specific state, however, because some still tax decedents on the dollars. She says inheritance or estate taxes deserve special attention in these states: Connecticut, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington.
“If you live in one of these states, get an advisor to work with you who is familiar with this,” encourages Neiffer.
In addition, the current estate tax exemption is temporary. It is set to last only until the end of 2025, so if you want to take advantage of it, Neiffer and Dobbs say don’t delay.
“Come Jan. 1, 2026, it’s going to revert back towards the 2017 level – about $6 million per person and $12 million for a married couple,” Dobbs says. She says the amount will be “about that” as it will be indexed to inflation.
Dobbs adds that the amount could change even before 2026, depending on any laws put in place between now and then. For instance, with midterm elections set for this fall and the general election in 2024, Dobbs says the outcomes could end up contributing to changes to the exemption amounts sooner.
“I want you to know what the law is now and be aware that this is a time to act,” Dobbs says. “This is potentially a ‘use it or lose it’ window of opportunity.”
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