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Estate Tax Reform at Hand

November 4, 2010
By: Jeanne Bernick, Top Producer Editor
TP 018 T10166
> After generations of ownership, farms and ranches across the U.S. may be forced to sell to pay for hefty estate taxes.  
 
 

This may be “our last year of farming” if Congress fails to act soon on estate tax reform, says Carolyn Lawrence. She and her husband, Rob, farm near Roseville, Ill., and are fifth-generation “stewards” of their operation. They doubt they can survive if they must pay a pre-2002 estate tax of a $1 million exemption and 55% tax rate.

The Lawrences farm in an area that has seen tremendous land value increases over the years. Rob’s parents paid $200 an acre for land now valued at $7,000 an acre. Meanwhile, they are in a financial squeeze as Rob’s parents reside in a nearby nursing home and their care costs currently consume most of the farm’s annual income.

While the elder couple incorporated the family farm, formed trusts and tried to plan for leaving their estate to their children, they did not anticipate a return to a $1 million exemption and an estate tax of over 50%, Carolyn told U.S. senators. The Lawrences participated in a recent Illinois Farm Bureau letter-writing campaign to Congress asking for estate tax reform.

“We call on Congress to act quickly to pass tax legislation in order to avoid the economic
damage that will be caused by tax increases and the uncertainty surrounding the tax code,” says American Farm Bureau Federation (AFBF) president Bob Stallman.

He believes there should be an exemption large enough to exclude farms from estate taxes and it should be indexed for inflation and transferable to a spouse. AFBF supports a $5 million exemption and a top rate of 35%.

Proposal Debated. Congress has put off serious discussion of the estate tax, but analysts expect it will be addressed in the lame-duck session. A proposal by Sen. Dianne Feinstein (D-Calif.) called the Family Farm Estate Tax Deferral Act would exempt family farms and ranches from the estate tax and update estate tax incentives for voluntary, permanent protection of lands with conservation values.

Many farmers do not support the proposal. They believe it would defer taxes only under stringent eligibility criteria and the condition that land remains in production and in the family. That would limit the flexibility heirs need to restructure or refinance operations, Carolyn Lawrence says. “There also are non-farm heirs,” she adds. “To tie things up for 10 years or more isn’t fair to them.”

Farm groups will be pushing Congress this month to make the estate tax issue a priority. For
farmers, it is “the single most important tax issue left unresolved by Congress,” Stallman adds.

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FEATURED IN: Top Producer - November 2010

 
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