Minding Ag's Business

Farm families feel like they're playing estate tax roulette as the $5.12 million per person federal estate tax exemption is set to expire Jan. 1--and for good reason. Adding to the anxiety of where Congress will reset estate tax treatment is that superheated land markets have tripled the values of many Midwest farms since 2000--and suddenly trapped many landowners with million-dollar taxes on property they've owned for decades and never planned to sell.

Minneapolis CPAs Andy Biebl and Nick Houle of CliftonLarsonAllen, instructors at a DTN University "Pass It On!" farm estate planning course last week in Chicago, shared details of a common situation in the Corn Belt. In this case, a 64-year-old Midwest farmer and his wife crop about 5,500 mostly rented acres with their son and run a small pork finishing operation on the side. Like most farmers, they invested in what they knew best over the decades--even when farmland wasn't fashionable.

Now with a net worth that has suddenly ballooned to about $12 million, the federal estate taxes on their life's work could range from $700,000 (under today's rules), to $2.3 million (if President Obama's $3.5 million exemption and rates prevail), to $5.6 million (if the old $1 million exemption is reinstated). That's a mind boggling range of damages.

Biebl doubts the U.S. will revert to the $1 million exemption, since it would snag many homeowners on both the East and West Coasts. He also points out that no taxes are due until the second spouse dies, so families have time to take steps to address their estate tax exposure and avoid a potential cash crisis. Family limited partnerships, gifts of stock, installment payments and other techniques play a role.

But the scale of the problem is weighing on farmland owners today. Some 84% of the 400 DTN readers surveyed last week think it would be fair for Congress to keep federal estate tax exemptions at current $5.12 million-per-person levels or even increase them--if heirs plan to continue the business. That includes 25% of respondents who think no estate taxes should be due as long as heirs operate the farm and 21% who think a $10 million-per-person exemption would be fair.

No matter where Congress eventually sets rates and exemptions, most farm families need to do some serious estate planning now.

To get conversations started with family members or your key advisers, join Biebl and Houle for an encore two-hour "Pass It On!" webinar Jan. 9. They will use case studies of real families to illustrate detailed model plans farm families can follow to help shrink their estate tax liabilities. The $85 registration includes course materials and ability to access the recorded event. For details go to http://www.dtn.com/…

Follow Marcia Taylor on Twitter@MarciaZTaylor.

(SK/CZ)

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