Individuals who live in Texas don’t face a state-levied estate tax, but that doesn’t mean that estate transactions are without tax burdens. This is especially true for estates that are valued at high dollar amounts. This includes farms.
The current exemption on estate taxes at the federal level is $5.34 million. That means that if an estate is valued at less than that amount at the time it is passed to heirs, those heirs don’t have to pay federal estate taxes. Since federal taxes on estates can be hefty, a lot of estate tax planning goes into protecting individuals from paying them.
For many Texas residents, that type of situation isn’t likely. For farmers, however, the value of agricultural equipment, land and other assets can exceed the threshold. One benefit for married couples who own farms is that they can together give $10.68 million to others at death or during their life without beneficiaries having to pay estate taxes.
Close to $11 million used to be a lot even for farmers with large acreage. However, on today’s market, some farmers are selling their land for around $15,000 per acre. At that price, a 1,000-acre farm is well above the threshold, even before counting the value of equipment, animals, crops or other assets of the estate.
Experts advise farmers to begin estate planning now to avoid large tax burdens later in life or passing those burdens onto heirs. Gifting portions of assets, incorporating farms and using trusts to protect assets are several ways to reduce tax burdens. It’s important to seek tax relief through legal channels, however, to avoid losing the farm to problems such as penalties, interests or audits.
Source: Ag Web, “Tax Traps: Don’t Get Stung by Estate Taxes” Boyce Thompson, Jul. 14, 2014