Foster: Estate tax exemption increases not permanent

Dennis Foster Special to the Farm Forum
Farm Forum

Well, as hard as it may seem to believe, a tax bill has actually made it through both houses of Congress and been signed by the president — with relatively little bloodshed, too. But, don’t worry, there is still plenty of bloodletting to go around with these camera-craving, bomb-throwing fools. No bias here. I am referring to the multitude of fools on both sides of the aisle. Too bad very few of them can figure out that meeting somewhere near the center of the aisle and swallowing their vain pride and party line insults may actually result in something meaningful being accomplished.

With that off my chest, the changes that relate to the estate planning theme of this column is the increase in the unified credit to $11,000,000 per person or $22,000,000 for a married couple. These amounts will also be adjusted for inflation over the next 8 years. This has taken a lot of farm families out of the crosshairs of what some term the death tax. But, there is a caveat (there always is) that must be completely understood. Despite what you may read or what you hear rolling off the lying lips of a politician, this is not permanent. Far from it. Quite frankly, it irritates me whenever any tax law is falsely touted as being permanent.

In this case, as the law is written, this large exemption only remains in place through 2025. At that point, it reverts back to the old exemption levels-adjusted for inflation. So, without another vote to keep it in place, it will fall back to around $6,000,000 per person or $12,000,000 for a couple in 2026. Quite a bit different than what would be around $13,000,000 per person or $26,000,000 for a couple under the current law. So much for being permanent. And, we must also realize that this can be re-written or repealed or at any point along the way as every law is only as permanent as the next vote. The moral of the story here is that if you are going to base all of your estate planning decisions on which way the political winds are blowing when your estate eventually does pass, the final outcome will also be blowing in the wind.

I advise my clients to be fully prepared for the worst-case scenario and to hope for the best. Realistically, hope is about the only thing we can do as it relates to taxes. If it turns out that you can manage to pass away in a timely manner, when the federal estate tax laws are most conducive … great. If you can’t manage that feat, your family may just have a serious problem on their hands, and the family farm could end up in real jeopardy. Those who are wise have contingency planning, and even more importantly, sufficient funding in place to ensure all passes smoothly no matter how the tax laws may read at the time.

On the bright side, the new tax codes give us some very good planning and gifting opportunities. So, you do not need to hurry up and die to take advantage of today’s $11,000,000 and $22,000,000 tax exempt amounts. The Unified Credit applies to lifetime gifts as well as testamentary amounts passed down. So, you can gift up to the very same levels without incurring any tax. We can also utilize the annual gift tax exclusion of $15,000 per donor per recipient. It would be prudent to take advantage of these amounts while you can. I will explain this in greater detail next month and follow that up with a real world case study to illustrate the possibilities.

Dennis Foster has been helping families with financial and estate planning needs for 25 years. He welcomes comments and questions and can be reached at 605-887-7069 or