My husband and I own a farm along with my husband's brother's widow. We share all crop earnings as an undivided interest. My question is: Is there a way that we can leave our part of the farm to our sons without them having to pay inheritance taxes on it? Maybe form a corporation and have them as partner's now? When my father in law died we had to pay so much that they would have to sell the farm due to taxes? Thank you. Susan
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Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.
Good afternoon. In what state is the farm located? Are you located in the same state? And, what is the value of your interest in the farm?
Both are located in Missouri and the value of our interest is 1.2million
I'm going to opt out so a Missouri tax expert can address this for you. Take care.
Hi and welcome to Just Answer!
Are you planning to gift the property to your son while you are alive/
Or you want your son to inherit the property after you die?
i would do whichever offers the best tax advantage
If you want to gift - you may simply transfer the title to your son.
Based on the value of the gift - you likely should file a gift tax return.
As a recipient of a gift - the person does not need to claim it as income. Regardless of the value. Please see for reference IRS publication 525 page 34 (left column)- http://www.irs.gov/pub/irs-pdf/p525.pdf
Gifts and inheritances. Generally, property you receive as a gift, bequest, or inheritance is not included in your income. However, if property you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you. If the gift, bequest, or inheritance is the income from the property, that income is taxable to you.
The donor (the person who makes a gift) who is an US citizen may be required to file a gift tax return if the value of the gift is above $13,000 per person per year.
If the value of the gift is less than $13,000 per person per year - there is no tax consequences for the donor.
That would be the donor who files form 706 - not recipients of the gift.
Refer to Form 709 , 709 Instructions.There will not be any gift taxes unless the lifetime limit of $5,000,000 (adjusted every year for inflation) is reached.
If you want your son to inherit the property after you die...
There is no inheritance taxes neither on the federal level nor in Missouri.
There are estate taxes which are based on the total value of the estate and are paid by the estate - not by beneficiaries.
The threshold for filing the estate tax return is $5,000,000
Similar for Missouri - see here - http://dor.mo.gov/personal/estate/
So - if your total estate is below $5,000,000 - there will not be any estate taxes.
Nevertheless - most likely there will not be any gift or estate taxes - for your son still it would be more advantageous to inherit the property.
That is because he would have stepped up basis for inherited property equal to the fair market value at the time you die.
So - if you son will sell the property - the taxable capital gain on inherited property might be less than on gifted property.
Let me know if you need any help.
Be sure to ask for clarification if needed.
What about forming a cooperation now with them as partners? If
i am correct, after Jan 1, 2013, the inheritance tax exemption will be $850,000 ; over that amount will be taxed at 55% Is that correct?
What about forming a cooperation now with them as partners?
"forming a cooperation" - means - you will form a partnership with your son.
The property is still yours - there will not be any change of the ownership unless you want to gift part of your ownership top your son. If you do so - all consequences of making a gift that I mentioned above will be in effect.
For instance - you may gift half of your property now - and let your son inherit another part after you die. That would be a combination of both and that is possible.
If i am correct, after Jan 1, 2013, the inheritance tax exemption will be $850,000 ; over that amount will be taxed at 55% Is that correct?
We are taking about estate taxes - not inheritance taxes.
While some states do have inheritance taxes (paid by beneficiaries) - there is no inheritance taxes neither on the federal level nor in Missouri. So your son would not pay inheritance taxes.
All above is based on today's tax laws - and that might change.
That is correct - under current law, in 2013 the estate tax will revert to the 2002 level.
The exclusion amount would be $1,000,000 and the estate tax rate will be up to 55% (not flat rate but a tax rate schedule).
The exclusion is applied separately to you and to your spouse. So unless you have other valuable assets - there still would not be any issues for you.
That would be if a new legislation is NOT passed again changing the rates.
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