With offices in Lebanon, Vandalia, and Centerburg, a great portion of our client base consists of farmers and their families whose main asset is the land where they live and work. For most, this land has been in their family for many generations. It has not only a monetary value, but also a very significant sentimental value.
While the real estate market has fallen significantly in the last few years, the value of farmland has been sheltered from the current crisis and in some cases it has even increased. Consequently, a common concern for our farm clients is what happens when the value of their land causes a significant Estate Tax (we sometimes call this the “death tax”) on their children?
Recently, we were informed of the death of Betty. She was a long time client for whom we had developed an estate plan many years ago. Her son, David, met with me a short time after Betty had passed away and was terrified because his financial advisors had explained that he would have to pay significant Estate Taxes because of the value of Betty’s taxable estate. Her estate consisted of a $15K checking account and a $1.5 million farm property. His advisor explained that there would likely be a $75,000 Ohio Estate Tax consequence because of the property and David would need to sell portions of the farm to satisfy this tax. For David, selling a portion of the farm was a terrible option.
The question was, did David have any options other than selling the farm and paying the Estate Tax? It turns out that David had been farming the land himself for many years and wanted to keep it in the family. I explained that Ohio tax laws provide for an alternate valuation that may be used for farm property. Taking advantage of this alternate valuation would result in a significant reduction in the $75,000 Estate Tax it looked like he would have to pay. This is possible because the farm can be considered “Qualified Farm Property” and David is considered a “Qualified Heir” under ORC 5731.011. David’s only commitment is that he will be required to keep the farm in Ohio’s CAUV program for the next few years following Betty’s death.
The alternate valuation election has certainly relieved a lot of stress for David and his family during a difficult time.
If you have a similar scenario, it is important that you and your advisors understand the options available to farmers and their families at death.
