We have reached that time again where the repeal of the federal estate tax exemption boogeyman (the “Repeal Boogeyman”) is being trotted out by many. This is the fourth time in my 18-year career this has happened. Before addressing the Repeal Boogeyman more, let us first look at where things stand as to the federal estate tax exemption. Next year, any person with a pulse will be able to shield $13,610,000 from the federal estate tax. Together, a married couple can shield $27,220,000. In 2025, this amount will increase until the estate tax D-Day /Armageddon hits on January 1, 2026. On that date, the exemption amount will revert to $6,800,000 and be “adjusted for inflation”. With the high rate of inflation we have seen over the past few years, many believe, when adjusted for inflation, the new exclusion amount will be around $7.5 million per person. Meaning, even if the Repeal Boogeyman has his way, a married couple can still protect a hefty $15 million. The intent of this article is not to downplay the significance a federal estate tax bill could have on a farming operation. Rather, it is to encourage people to be realistic and not get scared into taking action that may be unnecessary, expensive, and not in their farm operation’s best interest from a succession planning standpoint. 

Version 1.0 of the Repeal Boogeyman came in the mid to late 2000s. However, the decade started with a $675,000 exemption and ended with a 3.5-million-dollar exemption available. Thus, the Repeal Boogeyman never fully materialized. Version 2.0 came when Obama was elected president. However, the exclusion went from $3.5 to roughly $5.5 million during his presidency. Again, no Repeal Boogeyman materialized. Version 3.0 arrived when Biden was elected president. No changes were made. No Boogeyman arriving. Now, Version 4.0 has come along, based on the fact that the current law is set to sunset (expire) on January 1, 2026. Listening to many, allegedly this is when the Repeal Boogeyman is going to materialize and lead his minions across the fruited plains plucking value from all family farms, ruining farms, and a whole host of other unpleasantness. 

As has been the case during versions 1.0 through 3.0 of the Repeal Boogeyman, fear mongering has already started far in advance, being almost 2 years ahead of the date of the possible repeal. On the internet, a simple search of “estate tax sunset” yields more websites than I would care to visit engaging in electronic handwringing of the possible return of the Repeal Boogeyman. One website even states that attorneys, CPAs, appraisers, insurance advisors and other estate planning professionals are already busy, and they will “become overloaded as the deadline approaches.” Which makes me wonder: if these people are so busy already, why are they advertising and ringing the Repeal Boogeyman alarm bell? 

Sadly, many of these people whipping up these fears are advising of estate planning tactics that are not only unnecessary and expensive, but also are not the best tools for farm transition or succession. I’ve heard suggestions of irrevocable trusts, gifting all your assets away now, and a host of other forms of advice that undoubtedly would have little interest to people if not for the Repeal Boogeyman. 

In 2020, the USDA reported that 0.16%, or 50 farmers passing away, owed an estate tax. Think about that for a minute. In the entire country in 2020, only approximately 50 farms had an estate tax liability. So, there surely are instances where there is a tax to be paid. But, the million dollar question is: What was not done, that could have been done, to minimize or eliminate the tax liability? I am willing to bet that out of the 50 farm estates that had to pay federal estate tax in 2020, the vast majority (if not all) could have utilized more tools to reduce the value of their estate and thus eliminate, or at the very least greatly reduce, any federal estate tax liability. 

People need to be aware of the estate tax and the possible sunset in 2026, but should refrain from getting scared into unnecessary and expensive estate planning products. Besides, I believe issues such as nursing home costs, family estate disputes, fairness issues, and a whole host of other things can sink the transition of a farm operation before a federal estate tax bill will. 

So, what should a person do? Well, first, if you are married, look at your overall estate value and ask the question: are you over $15 million in assets, or could you be in the next few years if land and equipment prices continue to rise? (If you are single, do the same analysis using $7.5 million dollars). If the answer is “no”, then unless your land appreciates so much you are over the exemption, you win the lottery, or something else raises your estate value significantly, it is highly likely you will not have an estate tax issue if the law sunsets in 2026. So, go on with your life. If you are close to or over $15 million, then take a look at some of the basic farm estate planning tools that can be utilized to hedge against having a federal estate tax liability.

While it is important to stay abreast as to the potential change in the estate tax exclusion, and whether or not it will impact you, it is equally important to not be swayed into unnecessary and expensive estate planning tools by individuals selling fear of the Repeal Boogeyman. Much of this advice being peddled is what I would call “extreme” estate planning tools that undoubtedly do work well for reducing federal estate tax exposure, but often are so “nuclear” they erode the ability of the simpler tools that work best for farm transition. Simply, don’t focus on the estate tax tree and miss the entire farm succession/transfer forest.

These articles are for general information purposes only and should not be construed as specific legal advice or to create an attorney-client relationship. Laws vary among states and information contained in this article may not be applicable to your state. If you have a legal issue, you should contact an attorney.

John J. Schwarz, II, is a lifelong farmer and has been an agricultural law attorney for 18 years and is passionate in helping farm families establish succession plans. He can be reached at 1-844-FARMLAW and www.thefarmlawyer.com. Go to www.farmlegacy.blogspot.com for past articles.