Experts estimate 10 percent of farmland in the United States will be passed down over the next five years. That represents approximately 91 million acres, about the size of Montana.
Estate planning provides the tools that define who gets which assets and when. But, there's a problem.
“Current estimates show 58 percent of Americans have not written a will," says Dr. Erin Kiella, assistant research economist for the Real Estate Center at Texas A&M University.
“Lack of estate plans and insufficient communication between benefactors and heirs, especially for estates with large real estate holdings, could result in substantial amounts of land being sold, divided, or tied up in court proceedings.
“The average Texas landowner is 60 years old. As that age increases, the discussion of estate and succession planning takes on a new sense of urgency," she says.
A will is the bare minimum estate-planning tool used for real estate assets. Other tools have emerged that not only manage one's assets postmortem but allow the succession process to begin before the final transfer of assets, says Kiella.
Previously, estate planning was instrumental in managing potential federal estate taxes. On January 1, 2019, the federal estate tax threshold increased to $11.4 million per person and $22.8 million for a married couple. That threshold is set to expire in 2025.
If an estate surpasses the threshold, it is taxed anywhere from 18 to 40 percent. The Tax Policy Center estimates this threshold affects only 0.1 percent of those who died in 2018 (about 1,890 people).
“Given that so few are affected by federal estate taxes, estate planning has shifted focus to the management and minimization of income taxes," says Kiella. “Estate-planning tools can minimize taxes paid on the appreciation of assets, especially when a significant amount of assets is real estate. Many states also have a state estate tax and an inheritance tax. Texas has neither.
“Each estate- and succession-planning tool has advantages and disadvantages. Individuals should work with experienced professionals—estate and tax attorneys, certified financial planners, certified public accountants, and appraisers—to determine the best estate-planning strategy."
Kiella is author of “Leaving a Legacy: Wills and Trusts," an article in the upcoming April issue of Tierra Grande magazine. Read Kiella's article at https://www.recenter.tamu.edu/articles/tierra-grande/Leaving-Legacy. She is working on a follow-up article discussing the use of limited partnerships, limited liability companies, and corporations.