Illinois
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Certain death and taxes require careful estate planning

Recently my wife and I experienced shock and grief when our friend and family attorney for 25 years died in a tragic auto accident. This incident reminded us that we needed to plan ahead and take steps to plan our estates. As Benjamin Franklin once said, "in this world nothing is certain but death and taxes."

Estate planning is really a systematic way of preserving your hard-earned assets for future generations. It may be a process that will go on for many years and is filled with choices that you must make or otherwise pay the penalty of unnecessary taxes, legal and probate costs and possible disagreements among your children.

Harold D. Guither

If you do nothing, you may be volunteering to pay far more estate taxes than you would need to.

Careful estate planning can mean peace of mind that your heirs will have sufficient funds to live comfortably after you are gone. For farm families, it can lead to a division of property to assure continuation of the farm operation for those who want to continue. For others, reducing the estate tax burden may be the most important reason for estate planning.

When should a person begin estate planning? The answer may depend on your age or the size of your estate. The Agricultural Estate Planning Institute suggests a few simple rules:

Between age 60 and 70 is the best time to start, especially if there is a need to deal with farm succession issues. After age 70, involving children is often best, especially if you are a widow or widower.

Families with estates of $1 million to $3 million need to do some reading or attend extension meetings or seminars.

The typical farm family involves children working on the farm and children living away who are not involved in the farming operation. The off-farm children may want a share of the farming operation, but may prefer to have the family inheritance in nonfarm property. So the strategy is to preserve the farm operation for those who want to continue, and be fair to those off the farm.

An attorney experienced in estate planning recently pointed out that equality is not always equity. An equitable or fair inheritance need not necessarily be an equal one.

What he meant was that cash given to off-farm heirs may not be equal in value to the farm assets given to those on the farm since the farm assets may not yield as much return as cash placed in nonfarm investments.

The Tax Reform Act of 1976 provided special-use valuation for farm property. The Act allows an executor to exclude from the taxable estate a defined percentage of the value of land, subject to a qualified conservation easement. The Act also provides reduced taxes on certain family-owned business interests, and gradually increases the value of the unified credit exemption from $625,000 in 1998 to $1,000,000 by 2006 and later.

Section 2032A, for special use valuation of farm assets, and Section 2057, for the family-owned business interest deduction, are the "magic" tools that experienced estate planning professionals will use to arrange the transfer of farm property from one generation to the next while keeping the tax burden to a minimum. But the rules are very complex and require knowledgeable attorneys and accountants to use them properly.

For estate planning, one of the best investments that farmers and their wives can make is to get help from an experienced financial planner and attorney who understand farming operations and goals of the farm family. The payments to these professionals who understand the complex accounting procedures and tax laws can be a wise investment that could pay off many times in reduced estates taxes and family harmony in future years.

After 39 years on the faculty, Harold D. Guither retired as professor of agricultural policy at the University of Illinois at Urbana-Champaign in 1995. He was named an accredited agricultural consultant (AAC) by the American Society of Farm Managers and Rural Appraisers in 1997. His latest book Animal Rights—History and Scope of a Radical Movement was published by Southern Illinois University press in 1998.

4  ILLINOIS COUNTRY LIVING JANUARY 1999