Recent Blog Posts

Are you a farmer or farmland owner wanting to learn more about recent tax law changes and proposals? If so, join OSU Extension Educators Barry Ward, Jeff Lewis, Robert Moore and David Marrison on Friday, December 6 at 10 a.m. for a special edition of our Farm Office Live webinar presented by OSU's Income Tax School.  The team will discuss tax issues that may affect farmers and farmland owners for the 2024 tax season and beyond.

Topics include:

• Farm Economy and Tax Planning
• Tax Planning in Low Income/Drought Years
• Beneficial Ownership Information (BOI) Reporting
• Pending Sunset of Larger Estate Tax Exclusion Amount (Unified Credit)
• Residual Fertility/Fertilizer Deduction
• Clean Fuel Production Credit (I.R.C. § 45Z)
• Current Ag Use Valuation (CAUV) Changes in 2024
• IRC § 45Q - Credit for Carbon Oxide Sequestration
• Farm Loan Immediate Relief Under Inflation Reduction Act: Income Tax Options Triggered by Corrected 1099s
• Taxability of USDA Discrimination Financial Assistance Awards
• Pending Expiration (Sunsetting) of other Tax Cuts and Jobs Act (TCJA) Provisions

This two-hour program will be presented in a live webinar format via Zoom. Individuals who operate farms, own property, or are involved with renting farmland are encouraged to participate.  Registration is necessary and if you're a regular Farm Office Live attendee, you're already registered for the webinar.  For others, register at https://go.osu.edu/farmofficelive.

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.

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:

1. 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.
2. 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. 
3. 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.  
4. 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.

While we never like to see the damage and destruction caused by natural disasters, such as the floods in North Carolina, it can be an opportunity to take stock of our own situation. Disasters remind us of the unpredictability of life and highlight the need to ensure our personal and financial affairs are in order. While you might think that large-scale disasters won’t affect your area, people in North Carolina and Tennessee likely felt the same until disaster struck. With that in mind, here are a few key aspects to consider when planning for unforeseen events:

1. Estate Planning Documents.  Imagine being injured during a natural disaster, only to discover that your health care power of attorney has been destroyed in the chaos. Without it, your family might struggle to make critical decisions on your behalf. The same applies to financial powers of attorney, wills, and trusts. If those documents are lost or damaged, your loved ones could face significant legal and financial challenges.

To avoid these situations, you should have a copy of your documents in a safe, secure location.  One easy solution is to keep a digital copy with your attorney.  Most law firms keep their documents digitally on secure servers.  If your law firm does not already have a digital copy of your documents, consider asking them to add your documents to their server.  If you do not want to have digital copies of your documents, make a paper copy and leave with your attorney or another trusted person.

2. Insurance.  Have you reviewed your insurance policy with your insurance agent to access how your policy would address a disaster such as fire, tornado or flood?  Some of those affected by the recent flooding never imagined they’d need flood insurance—until it was too late.  Be sure to have a discussion with your insurance agent as to what type of disasters are covered and, more importantly, what disasters are not.  If your policy lacks coverage for certain disasters, consider adding endorsements to extend your protection. Acting proactively ensures you're not left scrambling when a crisis arises.
3. Business Succession.  What would happen to your farming operation if the primary manager were suddenly injured, incapacitated, or unavailable? Having a clear succession plan is essential to ensure the farm continues to operate smoothly in the face of such disruptions. Establish a plan that designates individuals—either from within the operation or externally—who can take over management duties if the primary leader becomes unavailable. Ensure that they are familiar with the day-to-day operations and responsibilities.

Also, Make sure that all essential business records are regularly backed up and that copies are stored securely, either digitally or at an offsite location. This is crucial in case the main office is destroyed or inaccessible.  Would you know what bills need to be paid in the next 30 days if the office is destroyed in a fire?

4. Contact Information.  If your phone was lost or destroyed, would you have the contact information for important people—like family members, employees, advisors, or key vendors? With smartphones storing most of our contacts, many of us only have a few numbers memorized. While you could eventually track down phone numbers, the last thing you want to do during a disaster is scramble to find essential contacts. Create a list of contact information for those you may need to reach in an emergency. Store a copy of this list somewhere outside your home or office, or give it to someone whose number you have memorized. This ensures you can quickly access critical phone numbers and emails when needed most.

While most of us may never experience catastrophic damage from floods, fires, or tornadoes, some of us inevitably will. How prepared are you for the unexpected? Being unprepared only makes a disaster more difficult to manage. Take an hour or two now to develop an emergency plan—this small investment of time will help you respond more quickly and avoid making a challenging situation even worse.