Estate taxes are assessed once the value of an estate that is being transferred to children or other heirs exceeds a certain amount of money. It is vitally important to understand whether an estate will be taxed or not so informed choices can be made in planning for estate tax. If estate tax is assessed, it is paid out of the money in the estate. Unfortunately, there is not always enough liquid cash to pay the amount that is due, which can create a situation where either part of an inheritance has to be sold or those who stand to inherit will be forced to take out costly loans to pay the tax and keep the property that has been left to them.
One particular situation where serious problems arise with estate tax is when a family farm is left to a new owner. As the farm is handed down through generations, the value of land can substantially increase. A farm on a few hundred acres that does not pull in millions of dollars in income could end up being valued, on paper, as being worth many millions of dollars due to the value of the land.
Unfortunately, since the estate tax could be based on what the land is worth, a huge tax bill could result. The heirs and estate in these cases may be land rich but cash poor, with little by way of liquid assets to pay for the big tax bill. This could result in the forced sale of at least some of the farmland, which is not something anyone wants.
There are special rules aimed at helping to protect family farms, but this does not necessarily guarantee that no farmland will be lost. If you are the owner of a farm, you need to talk with Unsworth LaPlante, PLLC about how to plan for estate tax so you can protect the land that should be able to be handed down through the generations. Give us a call to find out how a Vermont estate planning lawyer can help you to address issues related to estate tax and your family farm.
Special Rules for Estate Tax and Family Farms
The Washington Post published an article recently looking at the impact of estate tax on family farms and explaining some of the rules aimed at helping to shield farm owners and avoid the loss of farmland due to estate tax.
According to the Post, around 120 farms and small businesses which had at least half of their wealth wrapped up in farm or business assets had to pay estate tax in 2013. Around .6 percent of farms have to pay the estate tax to the federal government on farmland.
A lot of farms are exempt from having to pay estate tax because of a special use valuation applicable to certain farms. The special use valuation allows for the value of the gross estate to be substantially reduced if land is continued to be farmed for at least a decade after the death of the owner and if certain other criteria are met. In addition to the requirement that the land must be farmed for a decade, there is also a requirement that at least one family member actively participate in managing the farm AND there is a requirement that no rent cash leasing is permitted in most cases.
While it is good that this special rule exists, not every farm ends up being able to meet the criteria, and the additional reduction in the estate’s value does not necessarily put every farm below the taxable limit. As a result, you must make sure you explore your options for protecting your farm if you will be subject to estate tax.
Getting Help from A Vermont Estate Tax Planning Lawyer
There are ways to reduce the taxable value of your estate so you can fully protect your farmland, but the process of making an effective estate tax plan can be complicated. It is not something that you should try to handle on your own when your legacy is at stake. Unsworth LaPlante, PLLC has helped the owners of many farms in Vermont and we can put our legal knowledge and experience to work for you.
To find out more about estate tax planning as the owner of a family farm, download our free estate planning worksheet. You can also give us a call at (802) 879-7133 or contact us online to get personalized advice from a Vermont estate planning lawyer. Call today so our legal team can get to work on the protection of your farm.