Dear Michael: We have been holding off on our estate planning – waiting to see what the government is going to do about new taxes. We would like to know what the tax implications are going to be before we go ahead with our planning. Do you think this is the right strategy? – Waiting On Government.
Dear Waiting on Government: As you can well imagine, I have been just as frustrated as you are about the delays in how this government is going to run and how they are going to tax people to pay for it.
The only thing I do know is, when I look at the Debt Clock for America and where we are heading, it is not about “if” there are going to be new taxes, but “how much.”
It makes one wonder, sometimes, if having this vote regarding the budget being delayed until December, or Janet Yellen, head of the U.S. Treasury, announcing we will run out of money by Oct. 18, or the last-second agreement to keep the government funded, all has a deeper meaning?
Is it an attempt to make many of us understand how truly dire the situation really is? So dire, in fact, that both sides will have to come to an agreement about taxes and, therefore, neither side’s re-election bid is damaged?
One thing we can state for certain – our country cannot maintain as is without raising revenues.
If you are planning your estate, the best idea is to forge ahead because, while the world waits and holds its breath, people are still dying – suddenly and tragically.
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This is, by far, the most crucial time to plan for the worst and hope for the best in your estate plan. Based on certain economic principals, your chances of the worst happening are higher than the best happening. Therefore, a strong estate plan is your best defense right now. Those who wait to see how big the wave is going to be are typically those washed out to sea.
You have certain benefits right now in estate planning. Under the current law, you can either leave up to $11 million ($22 million for a couple) without estate taxes. You can also gift up to this amount during your lifetime without incurring gift taxes as the estate and gift tax table are the same table.
If this should change suddenly and radically while you are waiting to see, you may miss a rare opportunity of being able to gift $22 million without taxation.
If new taxes should go to a capital gains tax upon death, the amounts of growth allowed per couple would be $2.5 million of growth credit untaxed.
Each of you should be sitting down right now and trying to figure out what your basis in your property is.
For those of you who have millions of dollars of depreciated machinery, which – upon your death – could use up most of this $2.5 million credit, could you possibly already be in trouble?
For those of you who received your land as a gift or far below market value, $2.5 million does not go far. Are you in trouble?
For those of you who inherited land but did not get an appraisal at the time of death of the grantor, could you maybe be in trouble? IRS says it will accept documented proof with a qualified commercial appraisal. There are still a lot of people out there that have final estate documents who did not submit an estate tax return upon death (therefore no proof). Are you one who may be in trouble?
You can either sit out there on the beach watching the wave build – or you can act now to take advantage of the incredible gift tax breaks that are available right now.
Michael Baron provides estate planning guidance at Great Plains Diversified Services in Bismarck, North Dakota. Email him at KeeptheFamilyFarm@gmail.com.