Estate Planning for Farmers and Ranchers: Managing Estate and Inheritance Taxes header image

Estate Planning for Farmers and Ranchers: Managing Estate and Inheritance Taxes

Whether you’ve spent a lifetime building your farm or ranch or you’re just starting out, it’s likely important to you that your farm or ranch stays in your family. Estate planning for farmers and ranchers is definitely not an easy or one-size-fits-all process, but you can take steps now to ensure a smooth transition of your farm or ranch when it’s time to pass it to the next generation. Learn why succession planning is so important and how family farm/ranch estate planning can help your family save money and keep the large farm or ranch in your family.

Why create a farm/ranch succession plan?

You’ve worked hard to build or continue your family’s farm or ranch; keeping your legacy alive with the next generation is probably a top priority. A succession plan can ease the complexities — legal, financial, emotional, family dynamics — of transferring your farm or ranch.

Succession planning starts with setting specific goals — how will you divide your assets and who will your successors be? A huge benefit of succession planning is that the process encourages you to take a close look at your assets. Upon taking that closer look, you may discover that your estate’s worth may surpass the federal estate tax exemption limit or, if you live in a select state, it may be subject to that state’s estate or inheritance tax (not all states have an estate or inheritance tax). Succession planning can help you think through options for limiting some of the estate or inheritance taxes.

What You Need to Know About Farm Succession Planning

What is the federal estate tax?

Beginning in 1916, the federal estate tax has applied to the transfer of property at the time of someone’s death. However, it only applies to estates with assets over $5.49 million. And the combined exemption limit for married couples is $10.98 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 percent tax on the amount over the federal limit. Generally, the federal estate tax is required to be paid with cash within nine months of a death. This can be difficult if the estate is made up of mainly non-cash assets.

FBFS states with a state estate or inheritance tax

Fourteen states in the United States have their own state estate tax. Among these states includes an FBFS state: Minnesota. Additionally, six states require an inheritance tax, including FBFS states: Iowa and Nebraska.

Ways to reduce or avoid an estate or inheritance tax

If your estate is worth more or will be worth more than the estate or inheritance tax exemption limit, here are several things you may be able to do to avoid or reduce the tax.

  • Start giving gifts to your relatives. In 2017, the maximum amount you can give to someone without it counting against your lifetime exclusion amount is $14,000. This gift can be given to as many people as you choose. Gifting a certain amount of land (within the limit) to others can also help limit the tax implications.
  • Create a trust. Properly structured irrevocable or bypass trusts may be one option for legally protecting your assets. You may also create a charitable trust to leave some of your assets to.  
  • Spend it. If you’re worried your assets may be worth more than the federal or state limit and you’re financially stable for the rest of your life, you can enjoy your extra wealth and spend it.

It’s never too early to start thinking about farm/ranch succession planning. We understand it can be a complicated process, but you don’t have to do it alone. If you’re beginning to think about succession planning, start building your team, including your Farm Bureau agent. Your agent can help discuss the business succession process and create a strategy to ensure your farm or ranch remains in your family. 

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