Tax exemption law changes coming; is your farm estate plan ready?

If you actively work to secure your family farm legacy and preserve assets in an estate plan, a key tax law change is coming. Staying ahead of that change can help minimize the tax burden of transferring assets from one generation to the next. Here’s what to know to ensure your farm estate plan is taking full advantage of the law set to sunset in December 2025.

The Tax Cuts and Jobs Act (TCJA) of 2017 provided federal tax exemptions for up to $13.61 million in assets transferred by individuals. That limit is doubled for married couples. But the law is sunsetting on December 31, 2025. The exemption limit after that date will revert to $5 million per person (adjusted for inflation). That makes now a good time to consult with your personal tax advisor regarding your plans for gifting large farm assets from a farm estate so you can maximize tax savings.

Why the tax exemption change is a big deal

Currently, any assets gifted as part of a farm estate plan beyond the inflation-adjusted $13.61 million threshold is subject to federal tax up to 40%. Once TCJA sunsets, that same estate tax liability will be applied to any gifted asset beyond $5 million. This can ramp up the potential financial burden without the right estate planning. Ultimately, this could mean liquidating assets that could disrupt long-term financial planning or the execution of family inheritance.

Other important strategies to consider

In addition to accounting for the tax law change coming in late 2025, there are other strategies farmers should consider to help maximize current and future tax exemptions in your farm estate plan. When considering these optional strategies, be sure to always work with a trusted financial professional and an estate planning attorney to help build an estate plan that supports your unique circumstances.

1. Annual gifting. The annual gift tax exclusion allows individuals to gift up to $18,000 per person in real value with no tax penalty. That tax-free gift is doubled to $36,000 when given by a married couple.
2. Family limited partnerships (FLP) or family limited liability companies (LLC). These structures allow wealth transfer while retaining control over assets. Such structures can offer valuation discounts that reduce taxable estate values.
3. Charitable remainder trusts (CRT) and irrevocable life insurance trusts (ILIT). These types of trusts can provide income streams and reduce taxable estates. In many cases, assets dedicated to charitable giving or life insurance are kept out of an estate and are not subject to estate taxes.
4. Grantor retained annuity trusts (GRAT) and qualified personal residence trusts (QPRT). These types of trusts allow asset transfer with reduced estate tax implications. GRATs offer annuity payments before passing remaining assets to beneficiaries. QPRTs involve transferring residences to trusts, allowing continued living in the home for a set time.

While legislative extensions could keep the current TCJA exemption limits, there are no guarantees. Acting now helps you take advantage of a potential once-in-a-lifetime opportunity to save on estate taxes.

Estate planning is not just about preserving wealth. It’s also securing your legacy and ensuring your farm operations continue smoothly across generations. By preparing for these changes, farmers can help maintain their operations' economic sustainability and foster continued growth. It’s what Nationwide’s Land As Your Legacy program is all about.

Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.