Most folks dream of being successful in life, and over the course of a lifetime such drive builds assets. For some, these assets are modest, either by design or consequence. For others, they can be substantial.

In the case of farmers and ranchers, estates commonly consist of land, buildings, machinery, livestock, feed, investments, savings, life insurance, personal possessions and debts owed to or by the owner. But a large part of the asset base is often tied up in the value of the land. That's particularly true today as land values — spurred by outside capital chasing rural property's recreational and aesthetic value — soar well beyond their productive value.

A look at the chart on page 7 demonstrates the dramatic growth of pastureland value over the past five years. Put together a few thousand acres on which a rancher runs cattle or grows crops, add a home, some life insurance and a few other assets, and many folks approach the threshold where being without a plan to minimize their estate-tax liability can compromise a family ranching business for the next generation.

The federal estate tax exemption for 2007 and 2008 is $2 million, with a 45% tax rate on the estate's value beyond that figure. In 2009, that exemption rises to $3.5 million, and is completely repealed in 2010.

But in 2011, as the law is currently written, the exemption is reinstated at $1 million with a 55% tax rate. At today's land values, it doesn't take a huge operation, or even the most aesthetically appealing piece of nature, to eclipse $1 million.

“While a $3.5-million exemption level (in 2009) may seem high enough to make estate taxes a concern only for the very affluent, it's important to remember that your estate includes all your assets,” says Bruce Hoffman. He's a vice president, Investments and Financial Consultants, Wachovia Securities, LLC in Corpus Christi, TX, and a partner in his family's 130-year-old ranch.

Before assuming you don't need to worry about an estate tax, he says it may pay to consult with an estate-planning attorney who can advise you on your need for planning to reduce the taxes that could come due on your estate if you die in any year but 2010.

The good news is there are plenty of tools available to help alleviate or minimize that tax bite, but some homework and diligence are needed to take advantage of them. And the help and counsel of a professional are highly advised.

“It's never too early to start planning for the transfer of ownership of your farm. Once an owner is married and/or has children, it becomes critical to have a plan in place,” says Jim Lethert, a lawyer and wealth management consultant with U.S. Bank in St. Paul, MN. “And when the net worth of the business eclipses $1 million, including life insurance and death benefits, planning becomes mandatory.”

Estate-planning goals

Minimizing estate transfer taxes is often a top goal for large operations. But there typically are a number of goals producers want to accomplish when transferring their estate. These often include:

• Providing a smooth transition of the ownership and operation of the business.

• Providing sufficient funds for their own retirement.

• Providing adequate income for survivors and dependents.

• Passing on a viable farm operation to the next generation with a reasonably fair distribution among beneficiaries.

• Minimize income tax, legal fees, accounting costs and complications in transferring property.

A good estate plan should also create tranquility within the family, Lethert adds. Avoiding family conflict requires serious open discussions and honesty regarding each family member's goals and objectives.

The most important component of an estate plan, however, is you. If you can't muster the initiative to put your financial house in order, it won't happen.

“Most people are unprepared in this area, not because they're foolish, but because they're busy,” Lethert says. “Good estate planning is a wonderful gift that you leave those you care most about, but it's a gift that isn't appreciated until you're gone.”

But the fact is, without proper foresight, planning and diligence, your life's work might not make it to your heirs, or might make it in a form greatly diminished by the tax burdens placed on it as a result of death or disability.

“The number-one important thing is to just get started, and to do that you have to come to grips with the fact you will die someday. And you shouldn't wait until it's too late to at least address some sort of plan,” Lethert says.

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