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Avoid pitfalls of estate planning

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“Tax and financial planning are critical to the long-term survivability of family businesses,” says Pat Wolff, American Farm Bureau Federation (AFBF) Senior Director of Congressional Relations. The American Farm Bureau Federation invited Paul Neiffer, of CliftonLarsonAllen, to address estate planning at it’s annual convention.

Estate planning starts with “understanding the income tax, estate, and gift tax effects and how they affect the payments issued by the government,” says Paul Neiffer, principal at CliftonLarsonAllen.

“We have a gift tax exemption. That means each person, during their lifetime, can give away 11.7 million dollars,” Neiffer says. “The tax rate is 40-percent. It’s a flat tax rate, but you’re not going to owe gift tax until you give at least 11.7 million dollars.”

“The estate tax is not an additional 11.58 million dollars,” Neiffer says. “If you give away five-million during your lifetime, that means when you pass away, you only have $6.58 million. It’s what we called a unified credit – You can either do it during your lifetime or at death. Again, the tax rate is 40 percent.”

There are “Do’s and Don’ts” when it comes to estate planning, according to Neiffer. Annual exclusions, for instance, remain underutilized. Neiffer shares how to take advantage of annual exclusions.

“It’s $15,000 per year, per donee,” Neiffer says. “My wife and I have four sons. Three of our sons are not married. One of my sons is married with a daughter and son on the way. That means we have seven exemptions, or seven people we can give $15,000 to each – $105,000 for me, $105,000 for my wife.”

“Over time, this could be powerful,” Neiffer says. “You could have a net worth of 20- to 30-million dollars. If you start taking advantage of annual exclusions, and the power of that is it does not eat into that lifetime exemption. That is an extra credit you get each year, so take advantage of that.”

Neiffer reminds producers, “You have a chance to use it, but if you don’t use it, you lose it.”