Estate and Transition Planning
I recently received this question from a farm family. It’s one of the most common — and important — questions farm families ask when thinking about the future. Long-term care (LTC) is expensive, unpredictable, and often not covered by programs like Medicare. For farmers who’ve spent a lifetime building an operation and want to pass it on, the rising costs of LTC present a real financial risk to the land, the farm business, and the legacy. The following is a brief discussion on LTC costs and strategies.
The Growing Risk of Long-Term Care
Once upon a time, estate taxes were the biggest financial threat to the family farm. Today, that’s no longer the case. With higher federal estate tax exemptions, few farms owe estate taxes anymore. The real financial threat now? LTC costs.
LTC includes a wide range of services — from home-based personal care to skilled nursing facility stays — and most of it isn’t covered by Medicare. These services help people with chronic illness, disability, or aging-related conditions. For example, assistance with dressing, bathing, eating, or even just getting around. Care might start at home and eventually move to a facility. Costs vary by setting and service, but they add up quickly.
Here are a few important facts to help understand the implications of LTC on farming operations:
- 69% of people over 65 will need some form of LTC.
- Average LTC lasts 3 about years, with women needing slightly more (3.7 years) than men (2.2 years).
- 20% of people will need care for more than 5 years — these are the “outliers” most likely to face LTC costs that can jeopardize the farm.
- In Ohio, a year in a nursing home will cost around $100,000 or more.
For a farm couple, those numbers can double — and the risk of outliving income and savings increases.
Can the Farm Handle It?
If you’re wondering whether your operation could survive those costs, it depends on a few things:
- Do you have income (from Social Security, retirement accounts, rent, etc.) that could help cover LTC?
- Do you have non-farm assets, like savings or investments, to use before touching the farm?
- Would you be considered an “outlier”, needing care for many years — and would your current planning handle that?
In most cases, a farm family can survive average LTC costs, around $180,000, without needing to sell land and other critical assets. But it’s the outliers — the 5-to-10-year nursing home stays — that pose the greatest risk. That’s where planning becomes essential.
Planning Ahead: Options for Managing LTC Risk
There’s no one-size-fits-all solution. But there are strategies that can help reduce LTC risks and protect the farm. Here's a breakdown of the most common options:
- Do Nothing
For some, doing nothing is a valid strategy — if you have enough income and assets to cover even the worst-case LTC costs without risking the farm. But that’s rare. Most families should at least consider other options.
- Gifting Assets
Giving land or assets to heirs (usually children) more than five years before applying for Medicaid can protect those assets from LTC costs. But gifting comes with trade-offs:
- You lose control over the assets.
- The heir receives your original tax basis, which could trigger big capital gains taxes later.
- If you need LTC during the five-year look-back period, the gift can cause Medicaid penalties.
Gifting can be effective — but it needs to be done carefully, and early.
- Irrevocable Trusts
An irrevocable trust can protect assets while allowing some flexibility. You give up ownership and control, but the trust (managed by a trustee) holds the asset for your beneficiaries. If structured correctly and established early enough, the trust assets are shielded from LTC costs — and sometimes still qualify for a stepped-up tax basis at death.
But be warned: these trusts are complex, expensive to set up, and must be carefully maintained.
- Wait-and-See Approach
This strategy avoids doing anything upfront but relies on having enough income and savings to cover five years of LTC if needed. If care becomes necessary, assets are transferred and the clock starts. The gamble? If you can’t make it through the five-year penalty period, your assets might still be at risk.
- Self-Insurance
Some families choose to earmark a piece of the operation (a less productive farm, a savings account, etc.) to pay for care if needed. It gives flexibility and control, but it also requires discipline — and can lead to one spouse living more frugally out of fear the money won’t last.
- Long-Term Care Insurance
LTC insurance can cover all or part of the costs — and newer “hybrid” policies can include a life insurance component so the money isn’t lost if care isn’t needed. But these policies can be expensive and hard to qualify for, especially if you already have health issues. Still, they’re worth exploring with a good advisor.
So, What’s the Best Strategy?
The truth is, there’s no “best” option — just the best fit for your family’s goals, resources, health, and timing. Some families will mix and match strategies. Others will lean heavily on one. The important part is that you understand your risk and make intentional decisions, not default to inaction.
Talk to an Attorney and Plan Ahead
LTC is complicated. Medicaid rules, tax law, trusts, and gifting penalties are full of pitfalls. One wrong move — even with good intentions — can backfire. That’s why it’s so important to work with an attorney who understands long-term care planning and farm operations. Also, start the conversation now. Don’t wait until a crisis hits. Planning ahead can make all the difference — for your peace of mind today, and for your farm’s future tomorrow.
For more information on LTC and the risks to farms, see Long-Term Care and the Farm, a bulletin available at farmoffice.osu.edu.
Tags: Long-term care planning
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Farm transition planning is an essential process for agricultural operations. However, identifying and tracking assets and resources and preparing for transition planning can present significant challenges for farm families. To assist with these tasks, Ohio State University Extension has developed the Farm Asset and Resource Management Spreadsheet (FARMS), designed to provide a structured approach to organizing farm transition information.
What is FARMS?
FARMS is an Excel-based resource designed to support farm families and agricultural professionals in collecting and systematically organizing all necessary information related to farm transition planning. Whether at the preliminary stage or already engaged in detailed succession planning, FARMS enables users to input and manage varying levels of data effectively. See example screenshots below for further explanation.
What Information Does FARMS Collect?
Farms collects all the following information:
- Family and beneficiary names and contact information
- Bank accounts
- Financial Accounts
- Life Insurance
- Business Entities
- Real Estate
- Personal Property
- Farm Property
- Debt information
- Designations for executor, trustee, power of attorney, guardian
What Does Farms Do with the Collected Information?
FARMS uses the information provided by the user to do the following:
- Help ensure assets are titled to avoid probate
- Determine net worth and value of estate
- Calculate estate tax liability
- Allocate assets and net worth between spouses
- Allocate assets among beneficiaries to determine how much each beneficiary will receive from the transition plan
- Provide information that will be needed to complete wills, trusts and power of attorney documents.
How to Use FARMS?
Given its foundation in Excel, users should possess at least a basic familiarity with spreadsheet navigation. Training videos are available on YouTube to assist new users with becoming familiar with FARMS, explaining how to enter data and use the summary and analysis functions. A link to the training videos is provided below. Additionally, OSU Extension occasionally provides training sessions for potential users. It is recommended to review the training videos or attend a training session before using FARMS.
Who Should Use FARMS?
FARMS is suited for anyone involved in the farm transition planning process, from family members beginning their farm transition plan to professional advisors engaged in developing detailed transition strategies for clients.
Accessing FARMS
To begin using FARMS, interested users can download the file at the link provided below. We request users complete an initial, short survey prior to downloading FARMS, as user feedback is important to the ongoing improvement of the spreadsheet. FARMS is available at no cost due to the financial support of key partners including North Central Extension Risk Management Education and the National Agricultural Law Center.
Conclusion
FARMS offers a structured, organized approach to farm transition planning, allowing farm families and professionals to collect comprehensive, accurate information. For additional information and to begin utilizing FARMS, visit Ohiofarmoffice.osu.edu and discover how FARMS can positively impact your farm’s transition planning efforts.
Links for FARMS
Training Videos are available here: https://www.youtube.com/@osufarmoffice
FARMS can be downloaded here: https://farmoffice.osu.edu/farmsspreadsheet
Upcoming FARMS Online Training Courses
Click on registration link to register for the course.
April 7 @ 10:00 am: https://osu.zoom.us/meeting/register/oJmnwm-VQx6XjqvBh7J0aA
April 16 @ 10:00 am: https://osu.zoom.us/meeting/register/iY9cLoJeQwS0rUHkHr3DpA
April 23 @ 1:00 pm: https://osu.zoom.us/meeting/register/vT_-X56FQQqBT63fKUQW4g
May 2 @ 3:00 pm: https://osu.zoom.us/meeting/register/KmbdTjq2SryLkYNOaevp3Q
Example screenshots of FARMS
This worksheet collects family and contact information. This information is used throughout the spreadsheet for beneficiary designations, executor identification and beneficiary allocations.
This worksheet collects all real estate information including parcel identification, value, ownership and probate status. This information is used to avoid probate, and the values are included in the estate tax and beneficiary distribution analysis. Note the use of client and beneficiary names retrieved from contact information worksheet.
This worksheet collects information on up to 10 business entities. The type of entity, tax structure, assets held in the entity, ownership information and probate status is all included.
This is the summary and analysis page. All the information provided in the financial worksheets are pulled into this page and summarized. The user can assess net worth and analyze potential estate tax liability. Additionally, assets can be divided between spouses for additional estate tax analysis. Perhaps most importantly, the assets can be allocated among the beneficiaries to visualize the distribution plan. A running total for each beneficiary is provided.
Tags: FARMS, transition planning
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As we all know, family farms often hold deep sentimental value. They are passed from generation to generation, with the hope that they will stay in the family. But without careful estate planning, these properties can become the subject of costly legal disputes—and even forced sales. A recent case from the Ohio Court of Appeals, Stephan v. Wacaster, is a textbook example of how inadequate planning can lead to the partition and sale of family land.
The Case: A Family Farm Divided
In Stephan v. Wacaster, the appeals court affirmed a decision forcing the partition[1] of a 95-acre farm in Miami County, Ohio. Here's what happened:
Margaret Stephan, the original owner of the farm, left a will giving life estates to her two children, Connie Wacaster and DeWayne Stephan. Upon each of their deaths, the will directed that their respective shares would pass to their children. For DeWayne's half, that meant his sons, Rick and Chris Stephan. For Connie’s half, her children, Tami Bodie and Todd Wacaster, would inherit.
Both Margaret and DeWayne passed away. Rick and Chris, now owning DeWayne’s one-half of the farm, filed a lawsuit seeking to partition the farm and divide the proceeds. Connie, still living and holding her life estate in half the property, objected. She argued that because she was still alive and held a life estate over the whole farm, the property couldn’t be partitioned until her death.
However, the court reached a different conclusion. It determined that Margaret's will created a tenancy in common between Connie and DeWayne, rather than a joint survivorship. As a result, when DeWayne passed away, his sons, Rick and Chris, immediately inherited his half of the farm. This ownership gave them the legal right to seek partition of the entire property—even though Connie was still living there and held a life estate in her half.
If Rick and Chris move forward with partition, Connie will face a difficult choice: either purchase their half of the farm or allow the entire property to be sold—likely at public auction. If the property is sold, Connie may ultimately be forced to leave the farm altogether, losing not only her home but also the family legacy tied to the land.
Why This Happened: Poor Estate Planning
At the heart of this family dispute is a will that lacked clarity and failed to anticipate future complications. Margaret's will did not create a survivorship interest for Connie and DeWayne, nor did it include restrictions to prevent partition actions. As a result, once DeWayne passed away, his children held a vested, possessory interest in half of the farm, and Ohio law granted them the right to partition the property. It is probably safe to assume that Margaret would not have wanted the farm sold while Connie was still alive and lived on the property.
How Better Estate Planning Could Have Helped
This case is a cautionary tale for anyone who wants to keep property—especially family farmland—within the family. Here are a few ways Margaret's estate plan could have avoided this outcome:
- Survivorship Provisions: Margaret’s will could have created a joint survivorship life estate so that Connie would receive full ownership upon DeWayne's death. This would have delayed the transfer of DeWayne’s share to his children until after Connie's passing.
- Use of a Trust: Rather than distributing life estates and remainders through a will, Margaret could have placed the farm into a trust, which would allow for more control over how the property was managed, used, and distributed over multiple generations.
- LLC: Margaret could have placed the farm into an LLC and her heirs could have inherited the LLC. Provisions in the LLC agreement could prevent partition and only allow the farm to be sold if at least a majority of family members consented.
The Takeaway
Estate planning for real estate—especially family farms—requires careful thought and precise legal drafting. Without it, disputes like the one in Stephan v. Wacaster become commonplace. Keeping land in the family for future generations can be accomplished by precise drafting in a will, the use of a trust, or setting up a land LLC.
This case is a reminder that even with the best intentions, a poorly drafted estate plan can drive wedges between family members and lead to the loss of important property. Anyone who wants to preserve their family land should work with an experienced estate planning attorney to create a plan that protects the property.
[1] Ohio law allows any co-tenant (co-owner) of real estate to file for partition. This process causes the court to sell the property and divide the proceeds among the owners. The purpose of this law is to prevent a co-tenant from being forced to own real estate when they do not agree with the other co-tenants on ownership and management issues.
If you and your family are grappling with the critical issue of how to transition the farm operation and farm assets to the next generation, OSU Extension is here to help. Producers are encouraged to attend one of three regional “Planning for the Future of Your Farm” workshops during March. These workshops will challenge farm families to actively plan for the future of the farm business. Learn how to have crucial conversations about the future of your farm and gain a better understanding of the strategies and tools that can help you transfer your farm’s ownership, management, and assets to the next generation. We encourage parents, children, and grandchildren to attend together to develop a plan for the future of the family and farm.
These workshops will be held in the following locations:
Wayne County – March 11 & 13, 2025
Location: Fisher Auditorium, 1680 Madison Avenue, Wooster, Ohio 44691
Registration fee: $85 per couple and includes course materials, refreshments and dinner for two persons. Additional members can attend at $40/person.
Contact John Yost at the Wayne County Extension office at 330-264-8722 for more information.
Click here for registration flyer
Licking County – March 13 & 18, 2025
Location: Hartford Fairgrounds, Babcock Bldg, 14028 Fairgrounds Road, Croton, Ohio 43013
Registration fee: $25 per couple and includes course materials and refreshments for two persons. Additional members can attend at $15/person.
Contact the Licking County Extension office at 740-670-5313 for more information.
Click here for registration flyer
Morgan County – March 27 & April 3, 2025
Location: Riecker Building, 155 E Main Street, McConnelsville, Ohio 43756
Registration fee: $10 per couple and includes course materials, light meal and refreshments for two persons. Additional members can attend at $5/person.
Contact Jordan Penrose, Morgan County Extension at 740-962-4854 for more information
Click here for registration flyer
Program Details
Teaching faculty for the workshop are David Marrison, OSU Extension Farm Management Field Specialist, and Robert Moore, Attorney with the OSU Agricultural & Resource Law Program. Topics covered in the workshop include:
- Developing goals for estate and transition planning
- Planning for the transition of control
- Planning for the unexpected
- Communication and conflict management during farm transfer
- Federal estate tax challenges
- Tools for transferring assets
- Tools for avoiding probate
- The role of wills and trusts
- Using LLCs
- Strategies for on-farm and off-farm heirs
- Strategies for protecting the farmland
- Developing your team
- Getting your affairs in order
- Selecting an attorney
Registration
Pre-registration is required. Click on the links below for the registration flyer for each workshop.
March 11 & 13, 2025- Wayne County (6:00 to 9:00 p.m.)
March 13 & 18, 2025 – Licking County (6:00 to 9:00 p.m.)
March 27 & April 3, 2025- Morgan County (6:00 to 8:30 p.m.)
Thank you!
OSU Extension thanks Ohio Corn and Wheat for its generous sponsorship of these programs.
More Information
More information is at: https://go.osu.edu/farmsuccession
For additional questions about these workshops, please contact David Marrison at marrison.2@osu.edu or 740-722-6073
Estate taxes have been a hot topic lately, especially with the looming expiration of the Tax Cuts and Jobs Act (TCJA). The TCJA significantly increased the federal estate tax exemption, which stands at $13.99 million per person for 2025. However, if Congress does not intervene, that exemption will drop to approximately $7.2 million in 2026, reverting to pre-TCJA levels.
Estate Taxes and Farms: The Current Reality
Despite the frequent debate about estate taxes, very few farm estates actually owe them. According to the USDA, only about 0.3% of farm estates are subject to federal estate tax under the current exemption. In fact, in 2022, the USDA estimates only 87 farm estates nationwide had to pay any federal estate tax at all.
If the exemption decreases in 2026, more farms will be affected, but the overall percentage will still be relatively small. Here’s what the numbers look like:
- The percentage of all farms owing estate taxes would rise from 0.3% to 1.0%.
- Large farms (those with $1 million to $5 million in gross income) would see the biggest jump, with taxable estates increasing from 2.8% to 7.3%.
See the chart below for a full breakdown.
Why Estate Taxes Matter for Farm Families
Even though only a small percentage of farms will be affected, for those that are, estate taxes can pose a significant challenge to passing the farm on to the next generation. Many farms are asset-rich but cash-poor, meaning they have substantial land and equipment value but limited liquid assets. This can create difficulties in paying estate taxes without selling off land or assets critical to farm operations.
How to Prepare for a Potentially Lower Exemption
With the possibility of a lower estate tax exemption in 2026, farm families should take proactive steps now to review and update their estate plans. Strategies to consider include:
- Gifting Strategies: Transferring assets now while the exemption is higher can help reduce the taxable value of an estate later.
- Trust Planning: Certain trusts, such as irrevocable life insurance trusts (ILITs) or grantor retained annuity trusts (GRATs), can help manage estate tax liabilities.
- Business Entity Structuring: Using a business entity, such as an LLC, can provide tax advantages and aid in succession planning.
- Appraisal and Valuation Planning: Keeping accurate and updated valuations of farmland and business assets helps clarify estate planning needs and may offer tax-efficient structuring opportunities.
The Bottom Line
Farm families need to evaluate their potential estate tax risk now—both under current exemption levels and the possible lower exemption in 2026. If you have concerns, consult with your attorney and other key team members to determine whether updates to your estate plan are needed. Taking action now can help ensure that your farm remains in the family for generations to come.
A couple of years ago, we published a series of posts addressing Long-Term Care (LTC) issues affecting farm families. Although there haven't been major legal changes in LTC, the costs have risen steadily, and eligibility requirements have adjusted to account for these higher expenses. We thought it would be a good time to do an update on LTC costs.
The table below illustrates the changes in LTC service costs between 2021 and 2023. In Ohio, home health care experienced the most significant percentage increase, now surpassing $75,000 per year, while nursing home costs have risen above $100,000 annually. It's likely that LTC costs will continue to climb in the foreseeable future.
*2023 Genworth Cost of Care Survey
Another important number is the Medicaid asset exemption limit. This is the amount of wealth that a person or married couple may own and be eligible for Medicaid. For Ohio, this exemption amount increased slightly as provided in the table below:
As these numbers indicate, to be eligible for Medicaid, an unmarried person can own almost no assets, and a married couple may own only a modest amount of assets. For anyone not eligible for Medicaid, LTC costs must be paid out-of-pocket until enough assets have been spent down to qualify for Medicaid. Due to the low Medicaid exemption amount, very few farmers will initially qualify for Medicaid without aggressive prior planning or spending down almost all their assets.
How can farming operations address the potential threat of Long-Term Care (LTC) costs? Unfortunately, for most farmers, there are no simple solutions. Covering LTC expenses out-of-pocket can strain the farm's finances, while qualifying for Medicaid may not be feasible for many producers. However, there are several strategies that can help mitigate LTC risks:
- LTC Insurance: Long-Term Care insurance policies can cover some or all nursing home costs. Although these policies can be expensive, and not everyone may qualify, it's worth exploring whether a LTC policy is a viable option.
- Gifting: Assets that are gifted more than five years before needing LTC services are exempt from being used to cover LTC costs. However, gifting means losing control over the asset and missing out on a stepped-up tax basis at death.
- Irrevocable Trusts: Transferring assets to an irrevocable trust can protect them from LTC costs after the five-year lookback period. While this approach offers more control over the assets than outright gifting, irrevocable trusts can be costly and require ongoing trustee management.
- Self-Insure: Some individuals choose to build up savings or other assets to cover LTC expenses. This strategy avoids complex planning and legal fees but ties up capital that could otherwise be used to expand the business.
- Wait and See: Some farm families prefer to wait and assess whether LTC costs will become a reality. They may then gift assets to protect them while retaining enough resources to manage through the five-year lookback period. This approach offers flexibility but risks five years of LTC costs.
Before choosing a strategy, it's crucial to assess the actual risk of LTC costs to the farming operation. Some may have sufficient retirement income to cover LTC expenses, negating the need for extensive planning. For others, LTC costs could threaten the farm and its land, necessitating aggressive planning. Consulting with an attorney or advisor experienced in LTC planning can help determine the best course of action for you and your farm.
Tags: long-term care, Medicaid
Comments: 0
If you and your family are grappling with the critical issue of how to transition the farm operation and farm assets to the next generation, OSU Extension is here to help. Attend one of our “Planning for the Future of Your Farm” workshops this winter to learn about the communication and legal strategies that provide solutions for dealing with farm transition needs and decision making. We’ve scheduled both a webinar version and several in-person options for the workshop.
This workshop challenges farm families to actively plan for the future of the farm business. Learn how to have crucial conversations about the future of your farm and gain a better understanding of the strategies and tools that can help you transfer your farm’s ownership, management, and assets to the next generation. We encourage parents, children, and grandchildren to attend together to develop a plan for the future of the family and farm.
Teaching faculty for the workshop are David Marrison, OSU Extension Farm Management Field Specialist, and Robert Moore, Attorney with the OSU Agricultural & Resource Law Program. Topics which will be covered in the workshop include:
- Developing goals for estate and transition planning
- Planning for the transition of control
- Planning for the unexpected
- Communication and conflict management during farm transfer
- Federal estate tax challenges
- Tools for transferring assets
- Tools for avoiding probate
- The role of wills and trusts
- Using LLCs
- Strategies for on-farm and off-farm heirs
- Strategies for protecting the farmland
- Developing your team
- Getting your affairs in order
- Selecting an attorney
Webinar version. You and your family members can attend the workshop individually from the comfort of your homes. The four-part webinar series will be February 3, 10, 17, and 24, 2025 from 6:30 to 8:00 p.m. via Zoom. Pre-registration is required so that a packet of program materials can be mailed in advance to participating families. Electronic copies of the course materials will also be available to all participants. The registration fee is $99 per farm family. Register by January 22, 2025 in order to receive course materials in time. Click here to register or go.osu.edu/successionregistration
In-person workshops. Our local Extension Educators are hosting in-person workshops at five regional locations across Ohio during the upcoming winter. Registration costs vary by. The in-person workshops will be held on
- January 23, 2025- Putnam County (9:00 to 4:00 p.m.)
- February 6, 2025- Pickaway County (10:00 to 4:00 p.m.)
- February 18, 2025- Clark County (9:00 to 4:00 p.m.)
- March 11 & 13, 2025- Wayne County (6:00 to 9:00 p.m.)
- March 13 & 18, 2025 – Licking County (6:00 to 9:00 p.m.)
Registration is required. Find registration information for all workshops at go.osu.edu/farmsuccession
Thank you! OSU Extension would like to thank Ohio Corn and Wheat for their generous sponsorship of these programs.
We hope you’ll join us to move forward on planning for the future of your farm!
For questions about the workshop, please contact David Marrison at marrison.2@osu.edu or 740-722-6073.
Trusts are often an important component of a farm succession plan. But there are two primary different types of trust – revocable and irrevocable. A revocable trust often meets most needs and can be the preferred choice for flexibility. However, in cases where enhanced asset protection or estate tax management is necessary, an irrevocable trust may be more suitable. Occasionally, a combination of both types may be needed for optimal results.
A new bulletin, Understanding Revocable and Irrevocable Trusts, is now available to help you compare these trusts and consider how each can play a role in your farm’s transition plan. Find this bulletin and many other farm transition related resources at farmoffice.osu.edu.
Also, we are about to renew our popular Planning for the Future of Your Farm Series with several in-person workshops scheduled:
- December 4, 2024 - Fulton County (9:00 to 4:00 p.m.)
- January 23, 2025- Putnam County (9:00 to 4:00 p.m.)
- February 6, 2025- Pickaway County (10:00 to 4:00 p.m.)
- February 18, 2025- Clark County (9:00 to 4:00 p.m.)
- March 3 & 17, 2025- Washington County (6:30 to 9:00 p.m.)
- March 11 & 13, 2025- Wayne County (6:00 to 9:00 p.m.)
- March 13 & 18, 2025 - Knox/Licking/Delaware County (6:00 to 9:00 p.m.)
An online webinar version will also be available on February 3, 10, 17, and 24, from 6:30 p.m. to 8:00 p.m. For more information on both the in-person and online presentations, visit Planning for the Future of Your Farm Workshops.
Join experts David Marrison and Robert Moore at Ohio Maple Days for a hands-on workshop on farm transition planning. This engaging session is designed to guide farm families in making thoughtful plans for the future of their farm business. Discover how to have essential conversations about succession and explore practical strategies and tools for transferring ownership, management, and assets to the next generation.
The workshop will take place on December 6, from 10:00 a.m. to 3:00 p.m., at the Ashland University Convocation Center. Visit woodlandstewards.osu.edu for additional information. Can't attend? More farm transition workshops are scheduled in the coming months—find dates and locations under the Farm Transition section at farmoffice.osu.edu.
Tags: farm transition planning
Comments: 0
Written by AnnaMarie Poole, Law Fellow, National Agricultural Law Center
Background Info
In 2017, the Tax Cuts and Jobs Act substantially raised the federal lifetime gift and estate tax exemptions, nearly doubling the previous limits. As of 2024, individuals can transfer up to $13.61 million, and married couples up to $27.22 million, without facing federal estate tax. This increased exemption has provided significant tax relief by allowing larger portions of estates to be passed on tax-free. However, this benefit is temporary and is scheduled to end on December 31, 2025. After this date, the exemption will revert to the 2017 level of $5.49 million, adjusted for inflation1, which would reduce the amount that can be transferred tax-free in one’s estate.
The estate tax exemption was raised in hopes of reducing the financial burden on higher wealth families, many of whom argued that the previous exemption levels led to “double taxation” on already-taxed assets, which harmed family-owned businesses and farms. Also, by reducing estate tax liability by raising the exemption, it was hoped that people benefitting from the higher exemption would invest more of their wealth rather than redirect it toward complicated estate planning or tax-avoidance strategies. The argument was this would help stimulate the economy.
Opinions vary widely on what will happen to the estate tax exemption after 2025. Some believe that Congress will extend the current higher exemption limits, which would keep the thresholds at or near the 2024 levels to continue providing tax relief. Others expect the exemption to revert to the pre-2017 level, adjusted for inflation, which would result in a significantly lower threshold that will subject more estates to federal taxes. Some predict a compromise, with the exemption being set somewhere between the current amount and the original amount, which would allow for a middle-ground approach that would balance tax revenue needs with estate planning concerns. Finally, some propose lowering the exemption even further than the 2017 level and increasing tax rates. Let’s look at each of these scenarios.
Option #1: Extend the Current Limit
One prevailing thought is to extend the estate tax exemption due to its minimal contribution to overall federal revenue and its limited impact on reducing deficits. Over the past 50 years, the estate tax has consistently accounted for less than 3% of total federal revenues. In 2020, it raised just $17.6 billion out of $3.5 trillion in federal revenue, enough to cover only about a day’s worth of federal spending. Given its relatively small role in funding government operations, many argue that the economic benefits of preserving wealth, protecting family-owned farms and businesses, and encouraging investment outweigh the limited revenue gains from allowing the exemption to expire. This perspective suggests that maintaining the higher exemption would continue to promote economic stability without significantly affecting the federal budget.
Option #2: Revert to Original Limit
Historically, the estate tax has been used as a tool to prevent the excessive concentration of wealth and political power. However, due to recent changes, only about 0.2% of estates are currently taxed, and the average tax rate on inherited wealth is just 2%. Proponents of a lower exemption argue that reverting to the original exemption level would restore the estate tax’s role in curbing wealth inequality and funding public services. Additionally, with an estimated $80 trillion in wealth set to be transferred from baby boomers to their heirs in the next two decades, a lower exemption could ensure that a larger portion of these inheritances is taxed.
Option #3: Middle Ground
Another potential solution for estate tax reform could involve finding a middle-ground exemption level that lies between the current higher threshold of $13.61 million per person and the previous lower amount of $5.49 million, adjusted for inflation. This would allow for more moderate estates to pass on assets without facing significant tax burdens while allowing larger estates to still contribute to public revenues. Adjusting the exemption this way could protect smaller inheritances while ensuring fair contributions from estates of higher value.
Another middle-ground option would be to maintain the current exemption of $13.61 million per person but introduce a slightly increased tax rate on any amount exceeding this threshold. Currently, estates over the exemptions are taxed at a rate between 18% to 40%. By raising the tax rate but keeping the exemption, there would still be protections for most estates but those exceeding the exemption contribute a bit more to the tax system. By making this adjustment, the policy could protect inheritances and generate necessary government revenue.
Option #4: Lower the Original Limit
Another option is to reduce the estate tax exemption to an amount lower than the 2017 level and/or increase the estate tax rates. An example of this approach is found in the American Housing and Economic Mobility Act of 2024, introduced in the Senate by Elizabeth Warren (D-MA) and in the House by Emanuel Cleaver (D-MO). The bill outlines various affordable housing initiatives aimed at lowering costs for renters and buyers, while proposing modifications to estate and gift taxes to fund these measures. Some proposed modifications to estate and gift taxes include:
- Lower the estate tax exemption to the 2009 amount of $3,500,000
- Replace the current estate tax rate of 40% with progressive rates
- Tax rate of 55% for estates valued between $3,500,000 and $13,000,000
- Tax rate of 60% for estates valued between $13,000,000 and $93,000,000
- Tax rate of 65% for estates over $93,00,000
- Additional 10% tax for estates over $1 billion
- Reduce the annual gift tax exclusion from $18,000 to $10,000
While this type of legislation seems unlikely to pass Congress, there is a vocal minority that would like to see estate tax exemptions significantly reduced.
Who Can Make Federal Tax Law Changes?
The President does not have the authority to unilaterally change estate tax exemptions or make permanent adjustments to the tax system; those decisions are made by Congress. While the President can propose or advocate for specific tax policies, it is Congress that drafts, debates, and enacts tax legislation. As the federal estate tax provisions are set to expire in 2025, any adjustments to exemption levels or tax rates will require congressional approval. Lawmakers may choose to extend the current exemption, revert to previous thresholds, reach a compromise, or adopt a new approach. However, while the President can influence this process, direct control remains with Congress.
What This Means For You
As of now, it is impossible to know what will come on January 1, 2026. However, it is not too late to utilize the current estate and gift tax limits. In the upcoming year here are some things you should consider:
- Gifting: Gifting can be an effective way of reducing estate tax liability but there are many tax and estate planning implications. For a detailed discussion of gifting, see the Gifting To Reduce Federal Estate Taxes bulletin available here.
- Consulting with an Estate Planning Attorney: An estate planning attorney can help set up the best plan for you and potentially utilize the current exemptions while they are still available.
- Reviewing Your Current Plan: You should make sure your current estate plan reflects your goals and takes advantage of the current higher exemption before it potentially decreases.
- Staying Informed: As the tax laws potentially change in the upcoming year, you should stay informed about issues that could impact your estate plan and your family’s finances.
1 The adjusted for inflation exemption is expected to be between $7 million and $7.5 million.
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