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Estate Planning Challenges For the “Asset Rich and Cash Poor”

This week the USA Today shared a helpful story that analyzed some estate planning difficulties faced by certain families, often farmers, who have many physical assets but few liquid cash stockpiles. One obvious challenge for these families is dealing with the uncertainty of the estate tax. Estate tax considerations are of clear concern, because the family may be unable to pay the tax burden that comes with inheriting the assets without being forced to actually sell those very assets.

Currently, there is a $5 million exemption level for the estate tax. However, without federal action, that exemption level will drop to $1 million by the end of the year. All inherited assets that exceed that level will then be taxed at various rates up to 55%, with a 5% surcharge on estates over $10 million.

Our New York estate planning attorneys appreciate that these estate tax issues are of paramount importance to certain community members, like farm families or those with family-owned businesses. For example, it does not take much for farms of various sizes to cross over that $1 million threshold when taking into account land, buildings, and equipment. In addition, for many farmers, land values have risen steadily with advances in natural resource technology because of the increased profitability of available minerals. Many resources can now be extracted from land that was previously unattractive to the mineral industry. This increases the value of land but makes estate tax considerations a real concern for more families.

The tax uncertainty can present some tough estate planning choices. For example, in order to take advantage of the current $5 million gift tax exemption rate, there may be a temptation for families to shift assets to children now. However, some parents may regret that decision down the road, because it requires ceding control of a farm or business to the child. Many parents may not be yet ready to do that. In addition, capital gains tax considerations for the children need to be considered if they have to sell later.

With uncertainty reining, some families may be tempted to simply wait, do nothing, and see what happens in the future. This is often a tragic mistake. While uncertainty affects how estate planning is conducted, it should never be considered a reason to avoid that planning altogether. Stories abound of family farms and business that were forced to close when an owner died without having conducted any planning to ensure the heirs would be positioned to pay taxes and take over operations.

See Our Related Blog Posts:

Succession Plans Are Essential for Family Businesses

High-Profile Examples Highlights Need for Clarity in the Estate Planning Process

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