For many, farming is more than a business: it’s a tradition. Families often pass farmland from generation to generation as a part of their inheritance.
With the fiscal cliff in January, the estate tax was set to revert to its 2001 limit of $1 million. This meant that all inherited farmland over $1 million would be subject to the estate tax. Congress passed some last-minute provisions to avoid the estate tax reset and benefit farmers.
- The $1 million tax-free limit was increased to $5 million. This amount will fluctuate with inflation. As such, the limit for 2013 is at $5.25 million.
- Any taxes over the limit are capped at 40 percent.
- The tax exemption is now portable. The Kansas City Star explains, “If a husband or wife dies and leaves an estate that is smaller than the $5.25 million exemption, the surviving widow or widower can add the unused amount to her or his own $5.25 million exemption at the second death.”
Although these new laws benefit farmers, they are more complex and require greater need for estate planning. Currently, over one-half of farmers don’t have a will or estate plan. The process of farm transitioning entails a lot of paperwork and informative talks with the family, but it will facilitate the complicated process of inheritance.