Are estate taxes crippling small businesses and farms?

Although the current $5.43 million threshold for federal estate tax may be high, there are still instances where a discriminatory impact may be felt. For example, an estate plan involving a family business might require additional proactive measures. According to one commentator, small farms are another area where the estate tax might have an unfair result.

In the words of one U.S. Senator, estates that are land rich but cash poor are hurt by the estate tax, which some characterize as a death tax. The Senator claimed that estate tax rates could be as high as 40 percent on family farms. Other U.S. Senators have released similar statements.

Is it true that the estate tax is killing small farms and businesses? According to data compiled by the Joint Committee on Taxation, only around 0.18 percent of estates had to pay estate taxes in 2013. That generates only about $20 billion in federal revenue each year. Compared to the size of the federal budget, commentators claim that removing the relatively small amount of revenue from estate tax would be hardly noticeable.

Fortunately, there are estate-planning strategies that may benefit small businesses under current estate tax law. One option provides for estate taxes to be paid off at low interest rates over a 15-year period. Another option might be a special use valuation, possibly resulting in a reduction of an estate's gross value.

One thing is certain: A small business may require additional planning when creating an estate plan. Our law firm has helped clients in this situation find optimal solutions that provide for loved ones, while still offering tax-saving strategies.

Source: Washington Post, “Is the estate tax killing small farms and businesses?” Glenn Kessler, April 14, 2016