No death tax is not a reason to avoid farm transition planning

Many in Ohio agriculture fought hard for the elimination of the estate tax, commonly referred to as the “Death Tax” by critics. While they can celebrate success, it is important to remember that even with no estate tax, there is still a need for careful farm transition planning.

Ohio’s version of this tax provision is set to expire due to a provision in the state’s biennial budget — a prospect that concerns financial planning professionals.

“The primary concern is that the repeal, along with changes in the federal estate tax will serve as a disincentive to doing farm transition, business and estate planning,” said Peggy Hall, director of the Agricultural and Resource Law Program of The Ohio State University Extension. “That’s the concern I’m hearing from many attorneys.”

The estate tax is a potentially confusing and burdensome issue; critics claim the tax forces farmers and small business owners to liquidate assets simply to pay the tax. Farm businesses are frequently framed within the debate as “asset rich, but cash poor.”

Ohio’s estate tax will disappear in 2013, a compromise date included in the final version of the budget bill passed by the General Assembly. The original authors of the provision intended to backdate repeal of the tax to the beginning of 2011, but settled on the later date in conference.

“Of course, the Ohio estate tax is a much smaller part of the overall estate tax issue,” Hall said. “The federal estate tax is a much larger issue than the state tax.”

The federal estate tax has been the center of a contentious debate for years; it returned to its full force this year after a gradual drawdown over the past decade, and brief sunset period in 2010.

While not necessarily supportive of the estate tax per se, legal professionals and farm transition planning experts fear farmers will neglect sound transition planning without the estate tax to contend with.

“I think it’s fair to say that the fear of paying the estate tax is often what gets the family to the lawyer, to the accountant, and to their financial planners and gets the discussion going,” Hall said. “I think that’s probably the driver, and an important one.”

Hall said while avoiding tax liability may be a key reason farm families focus on transition planning, several other key benefits arise from the discussion. Long-term management strategies, ownership transition and sound financial forecasting all can spring from the transition discussion.

Absent an estate tax, Hall points to the rising cost of long-term care, as well as retirement issues, as potential incentives to continue focusing on transition planning.

“In talking to my private-practice colleagues, the biggest challenge is getting farmers through the door to discuss these very challenging, very difficult personal decisions,” Hall said.

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