Dec. 31 is coming: Make sure your succession plan accounts for possible increases in the estate tax

Farmers have always loved their land and sought to keep it in the family for generations.But there may be one objective that’s even more important: Preserving the wealth created by that land for future generations.

That’s more complicated today because of two factors: (1) The dramatic increase in farmland prices of the last couple of years, and (2) the possibility that the inheritance tax may shoot up dramatically. For the rest of 2012, if you die, your estate will be taxed at a 35 percent rate, with the first $5 million exempted. But those rates are set to expire Dec. 31, 2012. The new rate, if Congress doesn’t act, would be a whopping 55 percent, with only the first $1 million allowed to transfer tax free.

Depending on the size of your farm, that could take a whopping piece out of the inheritance of your children or other heirs. Indeed, it’s conceivable that in some cases — if there aren’t non-land assets to cover the estate tax — some farm families might have to sell their land in order to satisfy the tax requirements. Then your family could lose not only the land, but a good part of the wealth itself.

That means it’s a good time to get with your financial planner, accountant or lawyer and make sure your estate is set up to minimize the tax bite regardless of what the political winds blow in. (It is, after all, an election year.) I’d also suggest you do it sooner rather than later, because the clock is ticking, and if you determine that it’s in your family’s long-term interest to sell your farmland before the end of the year, you should be making plans for that now. If it is in your interest to sell during 2012, it’s noteworthy that at least you’d be selling at a time when farmland prices are at an all time high. And while I expect continued strength, there’s no guarantee that today’s prices will be around next year.