E2—Lancaster Farming, Saturday, June 6,1981
Rising farmland values affect estate planning
NEWARK, Dela. Do you know
the current worth of your far
mland? Do you have an estate plan
that takes into account its rapidly
rising value?
Unless you keep this plan up
dated, your family’s inheritance
may be much smaller than you
meant it to be, once the taxes are
taken out.
In one of his seminars on farm
estate management last winter,
University of Delaware Extension
Farm Management Specialist Don
Tilmon pointed out that at a 10
percent rate of inflation, the value
of farmland doubles in just seven
years.
“In just four years,” he says,
“from 1977 to 1981, farmland value
has gone from an average of {1,250
an acre to $1,931 an acre. Between
February 1, 1980 and February 1,
1981, farmland increased 15 per
cent in value.
What are the implications of this
for the farm family when it comes
to inheritance taxes*
If you’ve taken advantage of
special farmland valuation in
planning your estate, the con
sequences probably won’t be too
great, says Tilmon. But to do so
you must meet certain
requirements.
To qualify under the special
valuation for farmland:
the value of the farm or other
closely held business assets both
real and personal property must
comprise at least 50 percent of the
decedent’s adjusted gross estate;
at least 25 percent of the ad
justed value of the gross estate
must be qualified farm or other
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closely held business real
property;
the property must pass to a
qualified heir who is a member of
the decedent’s family
the real property must have
been owned by the decedent and
been in its present use for five of
the last eight years preceding the
decedent’s death; and
the decedent or a member of
his family must have materially
participated in the operation of the
farm or other closely held business
for five of the eight years im
mediately preceding the
decedent’s death.
But this special valuation can’t
reduce the decedent’s gross estate
by more than $500,000. And this is
where rising farmland values can
get you, says Tilmon.
If you have a 300-acre farm, its
average value on February 1,1980
would have been $526,500. That
same 300-acre farm was worth
$579,300 February 1,1981, based on
average farmland values. That’s
an increase of $52,800 just through
inflation in one year.
“Assuming your family isn’t
able to qualify for the special
farmland evaluation, that increase
in land value alone would increase
their tax liability on your estate by
about $19,500,” says Tilmon.
“So if you go along without
trying to plan ahead of time for the
transfer of your estate to them,
you’re increasing the tax liability
of your heirs,” he warns.
Most farm enterprises are
notoriously not very liquid. With
inflation, there are a lot of cases
where, without proper estate
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planning, families will be forced to
sell the property just to pay the
taxes on it. This becomes more
critical as land holdings get larger
and the tax bracket rises.
“I think people are afraid to
begin a tax management program
because they think they*!! have to
give up control of their assets,”
says the economist. “But this isn’t
necessarily so. Some of the tools of
estate management do involve
this. But not all of them do.”
Other folks are afraid it will cost
too much money to draw up a good
estate management plan. But the
cost of legal services to develop
even a mildly complicated one
probably will amount to only $lOOO.
Most plans, if they involve only
wills and trusts, can be done for
less than $5OO.
“At any rate,” says Tilmon,
“lawyers are willing to sit Idown
and briefly go over your tax
situation with you. So you can find
out what estate management
services will cost, before you
engage them. And you don’t have
to be afraid to ask.”
About 245 people attended the
series of eight seminars on estate
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planning Tilmon held' around
Delaware last winter. Since then
about 20 farm families have
contacted him for further estate
planning information.
“This is just a handful of those
who should be updating their
plans,” he says.
One thing that concerns him,
Tilmon says, is the fact that,
though U.S. farmland values in
creased an average of 9.3 percent
during the year ending February 1,
1981 well below the 15 percent
increase of the year before the
value of Delaware farmland has
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continued to rise at the 15 percent
rate. By contrast, New Jersey’s
were up only two percent last year
over the year before, while Penn
sylvania’s were up by four percent
(Maryland farmland values rose
even higher than Delaware’s
however a whopping 23 percent
last year.;
Whatever the reasons for the
continued climb m farmland
values, their rapid inflation is
something every farmer should
consider. Only an up-to-date, well
developed estate plan can do this
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