Estate tax threatens rural farms

The estate tax continues to be a major factor to the disappearance of rural farms nationwide.

For farmers, a greater percentage of their assets are associated with land and equipment, increasing their estate tax burden significantly more than other business owners.

Farm owners are typically referred to as “cash poor, land rich.” On average, 84 percent of farm assets are land, machinery and equipment, but little or no cash.
The estate tax can cause the loss or break up of family farms when heirs are forced to sell assets to pay the tax and/or administrative costs.

For many farmers, selling even a fraction of their business or farm makes it less competitive and unprofitable, forcing the ultimate sale of the entire operation.

According to American Farm Bureau Federation President, Bob Stallman, estate taxes hit farm families worse than other small business owners because the majority of their assets are real-estate based.

"When Uncle Sam comes to pay his respects, surviving family members without enough cash on hand may be forced to sell land, buildings or equipment that they need to keep their operations going,” Stallman stated in an article in Ohio Farmer.

Congress recently passed new legislation in December that affects estate taxes, but only for 2011 and 2012, reducing federal taxation of large estates. The legislation affects families with an individual who dies in 2011 or 2012 and has assets of more than $1 million or an individual that gifts more than $1 million during this period.

According to The Ohio State University Extension, with this law change, an individual can leave a total of $5 million worth of assets with no federal estate or gift tax due. In addition, if the net worth of an individual’s estate, combined with the total counted amount given, exceeds $5 million, the federal estate and/or gift tax rate has been reduced from 45 percent to 35 percent.

These estate tax and gift tax changes will give a reprieve to those with estates valued at more than $1million, but only for the next two years. Those families with large estates who live into 2013 will have to distribute assets to lock in these provisions.

As new rules come into place, it will be interesting to learn what happens to the estate tax. What do you think about the estate tax and the new rules enacted by Congress? Do you know a farmer who has been affected by the tax? Do you think there are alternatives to the estate tax?

Photo obtained from: http://www.estateplanninglawblawg.com/tax%20dollars.jpg