Many Montana Farms and Ranches Face Liquidation
Action Needed Before It’s Too Late
Oct. 5, 2012
Montana’s Congressional delegation must be reminded that current estate tax provisions are set to expire at the end of 2012 and that farmers and ranchers will be adversely affected if that is allowed to occur. In 2013, the estate tax will revert to a $1 million exemption. Any estate worth more than $1 million will be taxed at a 55 percent rate, meaning the heir to the property would have to pay over half of the property’s appraised value in taxes to the federal government.
Even though residential property values have decreased in recent years, farm real estate continues to appreciate in value due to a variety of contributing factors. USDA statistics show that since 2002, the value of Montana farm real estate has doubled. Many more families would be subject to paying the estate tax on their farm or ranch when a parent passes away. At 2002 land values, a 2,604 acre farm or ranch reaches the $1 million exemption. With 2012 land values, a farm or ranch of only 1,316 acres would reach the exemption.
“When you take into consideration that in many parts of the state it takes upwards of 30 acres to raise a single cow, a 1,316 acre ranch is pretty small,” says Montana Farm Bureau Federation President Bob Hanson, a White Sulphur Springs rancher. “It’s been said that the estate tax doesn’t apply to most family farms and ranches. That’s absolutely untrue. If the estate tax is allowed to revert to a $1 million exemption, more than 9,260 farms and ranches would be eligible to pay the tax according to figures from USDA. Even under current law with a $5 million exemption, more than 2,074 family farms and ranches would be forced to pay the tax.”
This issue continues to plague Montana’s farmers and ranchers as the exemption level and rate have changed several times in recent years. “Farmers and ranchers need stability in the law so they are able to plan accordingly,” says Hanson. “Many farmers and ranchers have already gone through the extremely expensive estate planning process in order to assure they are able to pass the family farm onto their children. With the volatility in the law, it creates a financial burden and added stress to farmers and ranchers trying to protect their families and businesses.”
“People think the estate tax only applies to millionaires like Donald Trump but they are wrong. It can affect thousands of Montana farms and ranch families. Just because a farm or ranch is worth a lot of money, does not mean that the person who owns it is ridiculously wealthy,” explains Hanson. “The land is part of the person’s business. They want their children to carry on the business, rely on the land, machinery, buildings and anything else that can be counted towards the estate’s value. It’s not like the heir can just go out and sell part of the land or several pieces of integral machinery in order to pay the tax. They need those things to continue to do business.”
The rancher adds, “It’s important to remember throughout a person’s life, they pay property tax on the estate, income tax on any profit they generate, and countless other taxes on the business. The Estate tax basically hits us twice.”
—Montana Farm Bureau Federation