Published Apr 9, 2015

The estate tax: PFI members discuss

By Teresa Opheim

Is the federal estate tax affecting the ability to get future generations onto the farm?

We recently had interesting exchanges on the PFI discussion list on this question, as participants responded to an article I posted from the American Farm Bureau about a farmer in Tennessee who says his father-in-law was forced to sell off land to pay estate taxes. The land, in a rapidly developing area, is now in housing. According to the article: “Around 90 percent of farm and ranch assets are illiquid, with the value tied up in land, buildings and equipment. For [this] family, and thousands of others just like them, the ability to grow a business and pass it on to the next generation is slowed by a tax policy in direct conflict with the desire to preserve and protect our nation’s family-owned farms and ranches.” 

One commenter pointed out that indicates less than .6% of farm estates had to pay estate tax in 2013. (

Wrote a second commenter: “Estate taxes are not onerous, certainly not for farms. Of all the estate tax filings for 2013, only 20 were from small businesses or farmers. On average they paid 5% of the total value of the estate to settle the tax. ISU tax expert Neil Harl used to say how hard it was to find a farm that had been sold to pay estate taxes.”

According to another member: “While I tend to disagree with the Farm Bureau on any number of issues, I support their effort to educate Congress on how estate taxes affect farmers…. This affects farmers and small business owners at a time when there is a lot of talk about preserving the middle class. Forced sales of property to pay estate taxes will benefit more powerful interests and further consolidate land into the hands of a few. I know of families that have put their land assets into a trust to shelter it from estate taxes. This is a good idea on paper, but it then puts management of the land into the hands of trust officers, renters, and farm management businesses. Many of the goals of PFI require the sort of attention to the land that will not often be addressed by these people, even if their intentions are good. Renters vary in how well they care for the land, and few would go to the expense of a cover crop unless the rent agreement stipulated it. (Those of us affiliated with PFI need to get the word out to heirs, trust officers and absentee landowners).”

He continued: “Farmers (especially in the corn belt) are unique among small business owners in that the value of their land exceeds its income-generating capacity. If interest rates come up and commodity prices stay this low, we may see that corrected. But for now, you can’t really produce a crop that will service the full debt. For that reason, it makes sense to keep the step-up in basis where it is (and indexed to inflation), or base farmland estate taxes on some other metric. Much of our currently over-priced land is poised for a generational transfer. This is a huge issue for those of us who care about sustainable practices, soil conservation, water quality, and a host of other concerns. Estate tax policy and other economic factors could reverse progress we have made. If we don’t address this fact, we are simply ‘rearranging deck chairs on the Titanic.’”

Another commenter: “The estate tax is a good thing when it comes to farmland.  It will keep land on the market over the long run, rather than being locked up by ever expanding empires of land. Meanwhile a real farm couple in Iowa who holds free and clear 1000 acres of mere corn fields would maybe worry that the kids will have to pay some tax if they get any richer. They could give some of their burgeoning wealth to PFI or to the ACLU or to UNICEF.  No need to die so filthy rich, and there’s no reason to complain about it that I can see.”

Wrote another: “You hardly even need a good lawyer; the first $10.8 million of the estate of a married couple is automatically exempt, even before the lawyers get involved to shelter more of it. And the bulk of what gets taxed for the largest of the 2 tenths of 1 percent of all estates that owe any tax at all is capital gains, which in most cases will have gone largely untaxed and can be passed on to heirs without them paying capital gains tax either.”

An unmarried commenter pointed out that “there are no persons who I can pass my land along to without the burden of taxes. For instance, if I willed my land to a close friend or to the young farmer who farms some of my land, they would have to pay huge taxes. It seems that there ought to be a way for everyone who has assets to be able to designate one person who could benefit–tax free–from an estate. Some people would pass their assets along to a spouse….

“Another thing to consider is the whole issue of income inequality in our society. And it seems, in my limited understanding of such things, that estate taxes were considered a way to keep the gap between the rich and poor from getting too big. But of course, there are many ways for that gap to continue getting bigger. Also, interestingly, when my father died in 2010, my siblings and I benefited from George Bush’s policies from years before. There were no estate taxes on the estate–an irony because even though my father and mother with the help of my attorney brother spent a lot of time and energy over the decades to keep the government from getting too much of their estates.”

And some final thoughts: “My family has paid estate taxes twice.  Once when my grandfather died as owner of a thousand or so acres of Pocahontas County farmland and again when his wife died. Now that his land has devolved to at least seven different owners it is not likely estate taxes will be due again on any of it….”

Land prices have gone up “due to high oil prices and the spread of ethanol, cheap herbicides, and genetic engineering of crops. These three changes made farming easier and cheaper while driving up the value of the crops. The extra margin went into buying more farmland thus running up the price of the land. None of us can claim credit for those changes.  We cannot say the increase in value is due to our own efforts.  It’s perfectly legitimate for taxes to be levied on the gains just as more taxes are levied on wage earners who make more money when demand for their labor increases.”