After a busy life on the farm, you may be looking at the next steps and addressing how you plan to pass on the property, land, and assets that you worked so hard throughout your life for. While many people may feel they do not need an estate plan if they aren't wealthy, it is crucial to help ensure that your property goes to who you designate and helps create the least amount of burden for them. So if you are ready to begin your estate planning, there are a few items to consider before getting started.
How You Want Your Property Transferred
There are multiple ways that property may be transferred after death. One of the most common options is transferred through a will, a legal document that expresses how a person wants their property distributed after their death and designates a person to manage the distribution process. Another option is designating beneficiaries, which will typically be used for insurance and retirement policies to determine funds' disbursement. Property may also be subject to operational law, which is when a third party will have a legal claim to the property through existing legal principles. This would take effect in the event of joint ownership. Finally if there is no will, the property could also be disbursed by state law. If you wish to have a say in how the property is transferred, it is beneficial to have a will created.
How Gift Taxes Might Affect the Inheritance of the Property
If you choose to pass your property to family members other than your spouse before your death as a gift, you will need to file the proper gift tax return. This is needed for any property that is more than $15,000 and is the responsibility of the person giving the gift. The good news is, for most citizens, you may not have to pay a gift tax on the property even if the gift exceeds the annual amount. This is because you may be shielded by a lifetime exemption for property up to $11.18 million.
While gifting can be an option for wealthy families, it is not always ideal if you are using it for moderate estates, and may actually result in a higher tax burden. This might occur with farm property if the value of the purchase price is significantly less than the current fair market value. This could lead to expensive capital gains tax. In these cases, it may be better for family members to inherit the land and receive a stepped-up tax basis value to lower the amount of gain. Gifting and estate tax laws are quite complicated, so it is important to weigh the options.
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