Farmers: How to Avoid Inheritance Taxes
Whether you’ve spent a lifetime building your farm or ranch or you’re just starting out, you’d rather not see your legacy gobbled up by inheritance taxes. Not to worry — you can ensure a smooth transition by taking the right steps when creating your farm succession plan. Here’s what you need to know to keep your farm or ranch in the family and avoid inheritance taxes for your heirs.
What Is the Federal Estate Tax?
Beginning in 1916, the federal estate tax has applied to the transfer of property at the time of death. However, in 2024, it only applies to estates with assets over $13.61 million. The combined exemption limit for married couples is $27.22 million. If your assets — farmland, equipment, equity, retirement funds — total more than the exemption limit, your heirs may be required to file a federal estate tax return and pay a 40% tax on the amount over the limit. Generally, the federal estate tax must be paid in cash within nine months of a death. This can be difficult if an estate consists of mainly non-cash assets.
Which States Have an Estate or Inheritance Tax?
Twelve states and the District of Columbia have their own estate tax. Additionally, six states require an inheritance tax, including Iowa, until 2025 and Nebraska.
How Can I Reduce or Avoid an Estate or Inheritance Tax?
There are ways to minimize the impact of taxes on your estate if you believe it is worth more, or will be worth more, than the estate or inheritance tax exemption limit. While you can’t completely avoid inheritance taxes for your farm or ranch, there are some tax breaks that can help reduce the tax burden. A few tax breaks for farmers include:
- Giving gifts to your relatives. As of 2024, the maximum amount you can give to someone without it counting against your lifetime exclusion amount is $18,000. A gift of this amount can be given to as many people as you choose. Gifting land (within the limit) to others can also help limit tax implications.
- Creating a trust. Properly structured irrevocable or bypass trusts are options for legally protecting your assets. You may also create a charitable trust. Of course, it is best to consult with your trusted legal advisor on the specific use of trusts.
- Spending it. If you’re worried that your assets may be worth more than the federal or state limit and you’re financially stable for the rest of your life, enjoy your extra wealth by spending it now.
Why Create a Farm Succession Plan?
You’ve worked hard to build your family’s farm or ranch, and it’s never too early to start thinking about succession planning. A succession plan can ease the complexities — legal, financial, emotional — of transferring your property. Additionally, having a plan in place can make it easier for your heirs to minimize inheritance taxes later on.
Start Farm Estate Planning Now
You don’t have to plan for your farm’s future alone. Start building your team, including your Farm Bureau agent, who can help discuss the succession process and create a strategy to help ensure your farm or ranch remains in your family. Get started today with succession planning.
Neither the Company nor its agents give tax, accounting or legal advice. Consult your professional adviser in these areas.
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