Changes to estate tax laws could affect family farms in 2013. (Photo courtesy National Corn Growers Association)

By Carrie Muehling

CHICAGO – Reducing the estate tax exemption from just over $5 million per spouse to $1 million dollars per spouse in 2013 could spell trouble for farmers wanting to pass land on to the next generation.

“This would create a lot of exposure, especially for farm families, because of the rapid increase in the value of farm real estate,” said Rick Morgan, senior financial security consultant with Country Financial.  “So there would be a lot more potential estate taxes that their estates could generate.  Of course, most farmers don’t have a lot of liquid assets, and the fear is that a lot of farmland would have to be sold in order to meet this additional tax liability.”

Income producing capacity of farmland is not directly related to fair market value.  Speculation, low interest rates and simple desire to own land have created a lot of demand for farm real estate.

“If you turned everything into cash, it would add up to a significant amount.  But farmers need a significant amount of property to be able to operate economically,” said Morgan.  “It’s really a disservice to say that they’ve got all this value, so who cares if they get taxed on it?  A lot of family farms would not be able to stay together if the tax structure were changed radically.”

Morgan recommends conducting a year-end interview with an attorney, financial planner or CPA to determine whether or not there are opportunities before the end of the tax year. Flexibility with plans will be critical as tax laws continue to change.

“We don’t want to make a bad decision based solely on tax results.  It has to make sense economically for the family, and it has to make sense for the future of the operation,” said Morgan.

Morgan attended the Illinois Farm Bureau Annual Meeting in Chicago.

Carrie Muehling can be reached at carrie@wjbc.com.