It may be hard to imagine a Minnesota farmer from our flatlands peering over a cliff, but that is what is happening. It is the fiscal cliff and it's located miles away in our nation's capitol.
If Congress does nothing prior to the end of the year, the so-called Bush tax cuts will expire. This is a significant tax issue for not only the owners of mansions worth millions in California, but also for farmsteads worth millions in our home state. It is a tax planning and tax liability question without a ready answer.
As it stands now, there is a $5 million exemption so if a family farm passes to the next generation, it can do so largely tax free. If the tax rates revert to their previous rates on January 1 (if Congress does not act) then the exemption would go back down to $1 million, which would impact approximately 70 percent of today's farmers.
The lower exemption rate would be only 247 acres -- a small farm by most standards. In Minnesota 98 percent of our farms are owned by individuals, family partnerships or family corporations.
In California the millionaires are trying their best to sell their mansions prior to the end of the year to avoid a capital gains tax. In Minnesota we have sent lobbyists to Washington to attempt to maintain the current exemptions and rates that apply to the estate tax.
A family farm may be worth a lot of money but little of it is liquid. It is tied up in land, livestock, machinery and other like items. Without the larger exemption rate, many family farmers would need to sell the farm in order to pay the estate tax. The higher exemption rate allows for that a generational pass-through in many instances.
When working on estate planning for a farm or any other significant asset, it is a wise idea to consult with a legal tax professional to limit tax liabilities as well as provide for any heirs in a manner that is desired.
Source: Grand Forks Herald, "Minnesota Farm Bureau pushes for estate tax exemption," Mikkel Pates, Nov. 27, 2012