Reconsider Gifting Strategies this Holiday Season

Katie Micik Dehlinger
By  Katie Dehlinger , Farm Business Editor

It’s the season for giving, but if annual gifting strategies are part of your estate plan, you may want to reconsider.

Congress raised the estate tax exemption levels to $11.2 million per person, or $22.4 million per married couple, in 2017 tax reform legislation, and that’s high enough that a majority of farmers can avoid estate taxes altogether.

“It didn’t take a lot of real estate to be exposed to estate taxes, and so there was a lot of incentive to gift portions of that real estate, or the company that owned real estate, in order to reduce this the taxable estate,” says Cal McCastlain, an attorney with Dover Dixon Horne, in Arkansas. “Now, the real driver or the incentive for that gift plan is no longer there.”

SAVINGS OVER TIME. Worried your heirs will think you’ve suddenly turned into Mr. Scrooge? Don’t be. The decision not to gift annually may save them money in the long run.

“Just sum it up is as tax-basis planning,” McCastlain says.

Farm real estate makes up four-fifths of the total value of farm assets, and while prices have leveled off in recent years, they’ve appreciated significantly since the farm crisis in the 1980s while maintaining a low tax basis.

When you gift real estate or interest in real estate, the recipient takes a carryover tax basis. If they decide to sell, they’re exposed to a substantial capital gains tax.

If the property is received in inheritance, it gets a step up in basis, which resets the tax basis at fair market value, thus lowering the capital gains due if the recipient later sells the property.

TAKE STOCK. “Anytime there’s a significant legal change out there or significant change in your personal life, you should reevaluate your estate plan,” McCastlain says. The first step is determining whether you will be exposed to the estate tax now that the exemption limits are higher. If you’re not, you may be able to simplify your plan.

Married couples that used two-trust estate-planning techniques to maximize deductions and those that employed annual gifting strategies could benefit the most from simplifying. Many farms used irrevocable trusts for estate tax purposes, and those trusts should continue to serve the purposes for which they were designed. There’s just a lower likelihood that they’ll be utilized in future estate tax plans.

“Those techniques may still serve a lot of people very well,” McCastlain says. But, “now you can put more focus on what the family needs, what is best for the family and not have it complicated by the estate tax.”

Trusts can be a valuable tool for asset management, and he encourages farmers to ask themselves a variety of questions like: “How do I want my assets managed?” “Do I want my beneficiaries to receive these assets outright?” Or, “Is there anything in the nature of the assets, the amounts of the assets or the personal situations involved that would justify keeping assets in a trust?”

Read Katie’s Business blog at



Past Issues