We hope none of you are planning on dying anytime soon, but the reality is that we all go at some point. For farmers and ranchers who own land that will be passed on to the next generation, a little planning, and some background in inheritance taxes could make it a little easier on your offspring. Some people have given estate taxes the nickname “Death Tax” which sounds pretty scary. So, I thought I’d check to see how deadly estate taxes are.
According to the Tax Policy Center, very few people end up paying federal estate taxes. In fact, only 1.4 out of every 1,000 estates will pay something on the value of their estate in 2013. This is because the tax is only levied on the portion of the estate that is over $5.25 million per person. So, if you and your spouse have an estate worth, for example, $11 million and you happen to die at the same time, your heirs will pay a tax on $500,000.
The estate exemption of $5.25 million per person is as high as it is in part because of concerns expressed by family-owned farms, ranches and businesses. They wanted to be sure that heirs would not have to sell off the farm in order to cover estate taxes. According to the Tax Policy Center, there will only be 20 small businesses or farm/ranch estates that will owe any federal estate tax in 2013, or about 1 in every 130,000 estates of people who die this year. The Congressional Budget Office’s figures show that those 20 estates have enough liquid assets to cover any taxes. If they don’t, there are special provisions written into the bill to make sure that farm and businesses assets don’t have to be sold.
If you are one of those lucky few whose heirs will be inheriting an estate worth more than $5.25 million (or $10. 5 million from you and your spouse), you have one more option. Farmers and ranchers (and everyone else) can gift up to $5.25 million in property gift-tax free during their lifetimes (except in Connecticut). This will reduce the size of your estate and the chances that your heirs will have to pay an estate tax.
If you’d like to know more about estate taxes, do consult your tax expert. State estate taxes vary. The experts can help you take a good look at your assets and develop a plan that works best for you and your heirs.