There are two things you need for your farming operation, says Ed Gillentine: an estate plan and a knowledgeable, trusted tax professional. Otherwise, he says, the consequences to you and your heirs could be unnecessarily costly.

“I’ve worked with hundreds of estates, and I’ve never seen an estate that worked out well without some type of plan,” he said at the annual meeting of the Mississippi Land Bank. “Given the outlook for further growth in land prices in the coming years, and the increasing value of your equipment, buildings, and other assets, I can promise you: if you don’t have a plan, you’re going to get hosed.”

Gillentine, a Certified Financial Planner and Chartered Financial Consultant with the Memphis firm, Williams & Gillentine Legacy Planning LLC, specializes in large estate transfers and philanthropic strategies, focusing on research, planning, and wealth management for families in the highest tax brackets.

“You may not think you have an estate large enough to worry about,” he says, “but with today’s land prices and the value of equipment, storage bins, and other assets, it quickly adds up.”

Two situations with potential for costly dealings with the IRS, he says, involve those who are “land-rich and cash-poor” and those who have land that has passed down through generations, but have not made provisions for taxes on the increased value.

“Land-rich, cash-poor is something we see a lot,” Gillentine says. “When you have a lot of land, you may look wealthy on paper — but if you don’t have any operating cash, you have problems.

“What we often see is land that has come down through generations and is now far more valuable, or land that has increased in value since it was purchased.

As the size of the farm grows – and you add a couple of combines, some tractors, a building or two — and you’ve now got several hundred or several thousand acres, it doesn’t take long until you get into millions of dollars of value. With inflation alone, it’s amazing how much the value of your assets can increase.”

For 2013, the IRS lifetime exemption for estate taxes is $5.25 million, he notes. It’s twice that much if you’re married, and the exemption automatically rolls over to the surviving spouse, for a total of $10.5 million.

If you are enjoying reading this article, please check out Southwest Farm Press Daily and receive the latest news right to your inbox.

“The tax rate for 2013 is 40 percent of anything over the exemption limit,” Gillentine says. “That’s what Uncle Sam gets if you die. You need to know these numbers, and you need to know that Congress can change them. When Congress can’t find any more money to cover their spending, where do you think they’re going to go? They’re going to go to the estate tax, because it’s not going to affect the masses, and they know they can raise the estate tax and still get enough votes to be re-elected.

“If Congress reduces the exemption and your farm’s value keeps going up, you can very quickly hit the limit. Once your farm’s value gets to about half the exemption amount, you need to be consulting with your CPA and your attorney.”