by Erika Greggs
Back in the 1980s, family businesses and farms were decimated by death taxes. We may well be on our way to this happening again.
Our government is printing money at an unprecedented rate. Our astronomical national debt gets higher by the second. At some point, somebody has to pay for this! The only way to ever cover this debt will be to take the money from “the rich.”
A husband and wife can pass an unlimited amount of assets to one another as they desire, due to what is called The Unlimited Marital Deduction. The problem is upon the death of the second spouse. That’s where the Death Tax comes into the picture.
The amount exempt from this taxation at the death of the second spouse is a moving target – dependent on who is in control in Washington, D.C. Currently it sits at $11,700,000 per spouse. The amount over the exemption is subject to the federal estate tax – currently taxed at 40%.
That situation is bad enough, but the alarming reality is that there is talk of lowering the exemption substantially (possibly all the way down to $1,000,000 per spouse) and raising the death tax rate exponentially (with a graduated tax rate up to 77% – compared to today’s flat 40% rate).
If our current administration lowers the amount exempt from tax, it will leave many businesses and farmers asset rich but cash poor — all the while making them pick up the tab. This will cause businesses and farms to sell valuable assets and land that have been in families for generations.
As the death tax must be paid within nine months from the date of death, this can lead to the forced sale of assets to pay the bill, and that can be devastating if no plan is in place.
Imagine losing your family farm because some greedy politicians think you are “rich.” This is happening in America.
The good news is there are legal ways to either avoid or pay this ruthless tax with pennies on the dollar. What is commonly used is life insurance with a special trust that places the death benefit outside of the estate. If you have a sophisticated financial advisor, he or she can probably help you in these areas.
The problem is very few farmers are necessarily aware that this is even possible.
In my 25 years in this industry, I have helped business owners and farmers to keep the results of a lifetime of work in the family. I learned that if one would spend 1 percent of their time planning, it could potentially save the family farm or business. However, it is my experience that this rarely happens.
The bottom linefor families that spent time planning is decidedly different from those with no plan.
It is said that, in this life, death and taxes are inevitable. And so is the Death Tax. If you want to keep your assets in your family, you must spend a little time with a professional that can help you ensure that your legacy carries on.
Erika Greggs is an Insurance and Annuities Agent with the Blackburn Financial Group, in Oklahoma.