Understanding the New Estate Tax Rules for Farmers
May 21, 2014
Whether you are a farmer whose family ownership of your farmland goes back multiple generations or you are a first generation farmer, your estate planning needs are unique because you own a farm. Estate planning for farmers includes making a plan which addresses many different items, including estate tax. Earlier this year, Congress passed changes to the estate tax rules which affect farmers and ranchers, so now is a good time to become familiar with the new rules and incorporate them into the estate plan for your family farm.
On January 1 of this year, Congress passed changes to the estate tax which will allow each farmer to pass $5.25 million dollars’ worth of farmland and other property without their beneficiaries paying any estate tax on it. This means that if a married couple owns a farm, $10.5 million dollars’ worth of property could pass estate-tax-free. When Congress passed the new exemption amounts, they also specified that the amount of the exemption will be adjusted for inflation, which explains why the initial exemption was passed at $5 million dollars, but for the 2013 tax year, the exemption is set at $5.25 million dollars.
There are other elements to the recent estate tax changes which benefit farmers and ranchers, too. For example, any unused portion of the $5.25 million dollar estate tax exemption may be added to the full exemption amount of a surviving spouse, so that even more property can pass at the surviving spouse’s death before estate taxes will be applied. This portability of unused exemption dollars is a new feature of the estate tax rules that did not exist before the current round of changes was passed.
Each farmer can also transfer $5.25 million dollars’ worth of farmland or other farm property during their lifetime without paying tax. This provision can be very useful for farmers who wish to hand over the operations of their working farms to their children during their lifetimes. When you add the lifetime transfer exemption to the estate tax exemption, it can add up to big savings for farm families. That is good news, as historically, farm families often find themselves facing financial pressures that put their abilities to keep their farm in the family at risk. Because of the substantial tax savings that could be realized by many farm families, it is important that all farmers become familiar with the estate tax changes so that they can incorporate them into their estate plans.
Understanding the recent changes to the estate tax is just one piece of the farmers’ estate planning puzzle. A family farm is often comprised of a mixture of business and personal assets. A good estate plan for a farmer will help the family business transition to the next generation, while providing a fair inheritance to any family members who will not be involved with the farm. Protecting your children’s interests in your family farm from creditors and divorcing spouses is also part of the farm estate planning process. Balancing lifetime interests and activities with estate planning goals like reducing estate tax or avoiding probate is another area where estate planning for farm families can get complicated.
Both small farmers and the owners of vast expanses of farmland need comprehensive estate plans to protect the interests of their families. An experienced Kansas estate planning attorney can help you to understand the recent estate tax changes as well as the other unique aspects of estate planning for Kansas farm families. For more information, call the Wichita office of J. Joseph Weber, P.A. or visit our website to schedule an initial consultation.