Saturday, June 24, 2000

Savvy Strategies

Charity saves family farmland

        Problem: As a widow, you own the whole $2 million family farm yourself, but your son farms the land. You want the farm to pass to him without him being devastated by capital gains or estate taxes.

        Strategy: Consider a deferred inheritance trust, also called a charitable lead annuity trust.

        Sally Alspaugh, president of Family Wealth Counselors of Cincinnati Inc., says the trust may be one of the most underused wealth-planning tools available.

        If you have substantial income from other investments, you may not need the rental income from the farm to support your lifestyle. In fact, you could lose about a third of this unneeded, passive income each year to income taxes.

        But if you transfer the farm into a 15-year deferred inheritance trust, the income from the farm will be gifted directly to your favorite charities, passing the limit on annual gifting, each year for the next 15 years. The cumulative gifting during the 15 years could be nearly $2.4 million.

        Then, at the end of the 15 years, the deferred inheritance trust will terminate and the farm will pass on to your son. The charitable estate tax deduction for the charitable gifts is about $1.4 million, which is credited against the value of the farm. This leaves only $600,000 of the $2 million farm subject to estate taxes.

        Then, using the unified estate tax credit (currently at $675,000 but scheduled to increase to $1 million by 2006), you are able to pass the farm to your son completely free of estate taxes.

        Bottom line: A multimillion-dollar estate asset is passed on tax-free and charities get $2.4 million.

        If you have specific income-producing assets to pass on to your heirs, a deferred inheritance trust may be worth consideration.

        Readers: Consider Savvy Strategies as general information only and seek the help of professionals because circumstances might vary.

        Planners: Share your unique strategies or new approaches with the Enquirer and our readers. Send your Savvy Strategies to Amy Higgins, 312 Elm St., Cincinnati 45202 or e-mail


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