B24—Lancaster Farming, Saturday, October 3,1981
Tax law enables farmers to escape inheritance tax
By David Morrison
Attorney at Law
LANCASTER As a result of
the new tax law, almost all Lan
caster County farms may be
passed on to family members free
of Federal Estate Taxes. But not
without proper estate planning
and, in the case of larger farms,
use of the special farm valuation
election.
For example, a $450,000 farm
passing from father to son could
bear a tax of $76,000 in 1082. By
splitting the farm between
husband and wife, and using a
testamentary trust, the taxes are
reduced to zero. The saving is lost
if one spouse dies before the farm
can be split. -
Under the new divorce law,
property is equitably divided
between the couple regardless of
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who has title, so splitting the
ownership does not carry the risk it
once had.
Most families would like to own
their farm jointly, and that is now
the thing to do with farms valued
under $250,000.
The. Pennsylvania Inheritance
taxes for farms has also been
reduced to only tax the farm
valued as a farm, and not its
highest and best use.
If a couple does.not want to
divide the farm, they have to use
the special farm valuation rules. If
a farm is m an area ripe for
development, its value as a farm
will be much lower than its value
as a development. These farms get
special treatment.
The amount a farmer can deduct
from the highest and best use
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valuation will go ujun the near
future:
1980 $500,000
1981 600,000
1982 700,000
1983 750,000
But there are many strings at
tached.
First.
Ten Year Financing Requirement.
Under the new law, the farm
cannot be sold for development for
ten years. There is, however,
allowance for a like-kind
simultaneous exchange to sell and
purchase another farm.
Second:
Unde Sam Becomes A Partner.
When the farm valuation elec
tion is made, Uncle Sam becomes a
partner in the farm by putting a
ten year lien on the farm for the
full estate tax. If at any tune the
farmer needs to borrow money,
IBS has to be asked to lower the
priority of its lien in order for the
loan to go through.
Third
Active Farm Management
Required Of Heirs
Gentlemen farmers who just
lease the farm do not qualify as
farmers. While driving a tractor is
not necessary, active farm
management is required of heirs
who utilize the special farm
valuation. The new law, however,
gives heirs a two year period to
start farming.
Material Participation Required
The decedent must have
materially participated in farming
for five of the eight years
preceding his death, disability or
retirement.
Filth: Timely Election.
The election for farm use
valuation must be made when the
estate tax return is filed. Under the
new law, the election can also be
made if the return is filed late. Of
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Fourth:
Of Decedent.