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Federal estate tax set to go back up in 2011

By KEVIN WALKER
Michigan Correspondent

LANSING, Mich. — Some farm groups worry that the estate tax issue will not be resolved in a way with which farmers will be comfortable.
Under a federal law called the Economic Growth and Tax Relief Reconciliation Act of 2001, estate taxes were lowered, but only temporarily. After being repealed in 2010, federal estate taxes are set to jump again, in 2011. Unless something is done before then, the tax rate for estate taxes will go up to 55 percent and the exemption will be reduced to $1 million. In 2009, the highest estate tax rate was 45 percent and the exemption amount was $3.5 million.

There are several different bills being considered now by the U.S. House of Representatives, according to Ryan Findley, congressional lobbyist for the Michigan Farm Bureau (MFB).

In December, the House passed HR 4154, sponsored by Rep. Earl Pomeroy (D-N.D.). It would make permanent the 2009 estate tax rates and exemption amount. The exemption amount for individuals would be set at $3.5 million for individuals and $7 million for married couples.

“At the end, farmers have an estate that’s worth something that they want to hand over to their heirs,” Findley said. “The farmers that I talk to are concerned about it. If you have 300 acres, you’re going to pay an estate tax on $52,000. If grandpa had some other assets, such as a house, tractors, and so forth, that would be part of the estate. It doesn’t take long to rack up a pretty big bill.”
Findley’s calculation is based on the valuation of $3,500 for an acre of farmland in Michigan.

“We are likely to see this legislation come up in the first three months of the year,” Findley said.

The American Farm Bureau Federation and the MFB would like to see the estate tax repealed altogether; however, the latest policy proposal from the farm organization is that, barring repeal, the exemption should be increased and indexed for inflation.

Ron Durst, a senior economist at USDA’s Economic Research Service (ERS), wrote a report last year discussing the estate tax, called Federal Tax Policies and Farm Households.

“It’s always been a big issue in transferring property to the next generation,” Durst said. “Right now the big issue is the uncertainty. If nothing happens it will go back to the 2001 (exemption) level, which is pretty low.”

The report, published by the ERS last May, discusses a number of breaks the 2001 law provided to those who might owe an estate tax, many of whom are farmers and small businesspeople.
According to the report, “Providing tax relief to farmers and other small business owners was a primary impetus for the 2001 Act. The Act reduced federal estate tax rates and substantially increased the amount of property that can be transferred to the next generation free of federal estate tax, culminating in the tax’s complete repeal in 2010. However, like many other provisions in the 2001 Act, the estate tax changes will sunset (expire) at the end of 2010.
“Since passage of the legislation ... only about 9,600 estates (0.4 percent of all estates) are expected to owe Federal estate tax in 2009, down from 51,766 in 2001.”

These changes came too late for Larry and Bridgette Leach, a couple that inherited an estate from their grandmother in 1998 called Avalon Farms in Climax, Mich. The Leach’s ended up having to pay $552,000 in estate taxes.

“I will resent to the day I die that I had to pay the estate tax and essentially buy my land all over again,” Bridgette said.

Bridgette said they were forced to basically liquidate all of their grandmother’s assets in order to pay the taxes and hold onto the land. She said they had an excellent estate tax attorney and that their grandmother did all the estate planning she could. Larry Leach said the laws changed in the 1980s and “undid” the planning their grandmother, Cecile Hagelshaw, had done.

“Truthfully, it’s been devastating to us,” Larry said. “I don’t fall under the category of rich.”

The Leach’s said they spent thousands of dollars on tax and legal advice and that the $552,000 was “more than double the debt” on the farm operation.

“Estate taxes are very punitive. It punishes people who create jobs and help fuel the economy,” Bridgette stated.

1/20/2010