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Understanding Physician Estate Planning
By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™
Suppose you are a physician or other individual who own a farm that for many years was located well outside the city limits of a growing community, and now the farm is in the path of this growth?
The dynamics of determining the fair market value of your farm have changed. You might be inclined to value it as a farm and your estate would make the argument that it is a farm.
“Highest and Best Use”
The IRS would argue the property should be valued at its highest and best use. Unfortunately for your estate the “highest and best use” might be as a mega mall, apartment buildings, or a high-rise office building.
All considerably more valuable than the farm might be worth.
Enter Internal Revenue Code Section §2032A
Valuation of a property at the highest and best use might force the survivors to sell the land to pay a large estate tax.
On the other hand, valuation at its present use might enable the survivors to carry on the farm business.
IRC Section 2032A permits qualifying estates to value at least a portion of the real property at its “qualified use.” The section applies to farms or other trades or businesses.
Major Requirements
Five major requirements and conditions must be satisfied. Ultimately, the maximum amount by which the value of the special use real estate can be reduced is $800,000 – or other amount indexed for inflation – after Y2000.
Assessment
While this is not an insignificant amount, if there is a large disparity between “highest and best use” and present use value, then planning to avoid the potential liquidity deficit is imperative.
Conclusion
Please opine and comment if you have ever considered or used this strategy; and what was the result?
Book info: http://www.jbpub.com/catalog/0763745790/
Linguistics: www.HealthDictionarySeries.com
Related: http://www.aicpa.org/PUBS/jofa/jan98/sbtaxsol.htm
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