Farmers should utilize portability in their estate planning.
Farming is not an easy profession.
Those who care for their land and animals know the will and ability to do this work is in their blood.
Many have inherited the drive, perseverance, and diligence from their ancestors.
While the character of a farmer may be instilled by previous generations, the land is also often passed down.
According to a recent Ag Web article titled “It’s So Important to Elect ‘Portability’ for Your Farm Estate,” poor estate planning can lead to a rupture in the ownership of a family farm or ranch.
With the high value of farmland, estate taxes on the estate may require portions of the land to be sold.
One way to minimize the estate tax for married couples is to utilize the portability election.
What is this?
The portability election allows the surviving spouse to “inherit” any unused federal estate or gift tax exemptions from the decedent spouse.
This significantly increases the amount the surviving spouse will be able to leave to heirs without being taxed by the federal government.
How does one make a portability election?
The surviving spouse must do so after the first spouse has died.
The widow or widower will need to file a Form 706 federal estate tax return within two years of the death of the spouse.
Even if there are no taxes owed, this form should be submitted.
What happens if the spouse waits longer than two years to elect portability?
The surviving spouse will be able to make the election with payment of additional expenses.
How much do these cost?
First, there is a user fee of about $12,000.
Additionally, the spouse will need to have an attorney prepare paperwork to file.
This could cost at least another $10,000 to $15,000.
This means a low estimate of expenses for delaying the portability election could cost you $25,000.
The expense could be upwards of $50,000.
These costs can be avoided by simply filing for portability within two years of the day your spouse died.
Portability has not always been an option.
Prior to this provision, the farm families typically titled half of the assets in the name of the husband and the other half in the name of the wife.
The purpose was to preserve the estate tax exemption for each spouse because the exemption would disappear if one spouse died without using the exemption.
With portability, the surviving spouse has two exemptions to cover the assets to distribute to heirs.
Reference: Ag Web (April 18, 2022) “It’s So Important to Elect ‘Portability’ for Your Farm Estate”