An Urban's Rural View

Soaring land values put farmers' heirs in a potential pickle. When mom and dad die they could end up owing Uncle Sam hundreds of thousands or even millions of dollars in estate tax. To raise the cash some may end up having to sell the farm.

That's true even under today's relatively favorable estate-tax regime: a tax rate of 35% and an exemption of $5 million per spouse. If the politicians can't strike a compromise and we end up going over the fiscal cliff, we will go back on January 1 to the 2001 regime: a 55% rate and a $1 million exemption.

That's the bad news. The good news is that so many people would suffer under those conditions that Congress will likely do something early next year to fix the problem. Andy Biebl, a CPA at CliftonLarsonAllen who teaches seminars for CPAs in more than two dozen states, is one of many experts who think there's little chance future estates will be taxed under the 2001 rules.

Speaking in Chicago on December 9 at a DTN/University seminar on estate-tax planning at the DTN/The Progressive Farmer Ag Summit, Biebl sketched some techniques farmers can use to minimize the estate-tax hit and enable heirs to cope with it while keeping the farm intact.

In response to a question, Biebl dismissed fears that the 2001 rules could hit an estate if the death occurred on, say, January 2, before Congress gets around to the fix. Estates have nine months to pay the tax and the fix will be retroactive to the beginning of the year. "This has happened before," Biebl said.

And how can we be so sure Congress will pass a new estate-tax law? Because almost no one favors a 2001 reversion. Biebl noted that housing prices in states like New York and California would thrust many middle-income homeowners' estates past the $1 million exemption. Democratic politicians representing these states would be hard-pressed to allow that.

President Barack Obama's proposal to raise $1.6 trillion in tax revenue over 10 years includes $143 billion in new estate-tax revenue, according to the New York Times. But the proposal envisions an increase in the rate to 45%, not 55%, and an exemption of $3.5 million per spouse, not $1 million.

And there are influential Democrats, led by Senate Finance Committee chair Max Baucus of Montana, who favor keep the estate tax and exemption at current levels.

Any chance of Congress eliminating the estate tax altogether? Biebl thinks not. The most comforting thing he had to say for farmers is that we needn't fear the fiscal cliff taking us back to 2001.

Urban Lehner

urbanity@hotmail.com