WASHINGTON – U.S. Senator Dianne Feinstein (D-Calif.) today introduced legislation designed to provide relief to family owned farms and ranches from estate taxes. The legislation is co-sponsored by Mike Crapo (R-Idaho), Mark Udall (D-Colo.), Michael Bennet (D-Colo.) and Barbara Boxer (D-Calif.).
“This legislation defers the payment of estate taxes for small family farms until those farms are no longer operated by the family, or until they are sold or used for other purposes,” Senator Feinstein said.
“To qualify, several criteria must be met: The deceased must have had an annual farm-related income below $750,000. The farm must generate more than 50 percent of the farm owner’s estate. It must be passed down to a family member who’s been involved in the operation for at least five years. And that family member must continue to use the land for farming.
“It is simply a deferral. It is fair and responsible.”
The federal estate tax can hit family farms and ranches especially hard. The value of farmland in some regions of the country has increased substantially in recent years, and many family farmers do not have sufficient assets to pay the federal estate tax in the event that they pass away. This sometimes forces family farmers and ranchers to sell all or part of their operation in order to foot the bill.
The estate tax was never intended to put family farms and ranches out of business or to prevent a legitimate family farmer or rancher from passing their business on to their children, ensuring that it remains in the family. This legislation would recognize that important principle by exempting family owned and operated farms and ranches, that stay in the family, from the estate tax.
Under the Family Farm Estate Tax Relief Act, farmers or ranchers would be exempt from paying federal estate taxes provided the following conditions are met:
- The farm must be passed down to an individual or family member who has been materially engaged in its management and operation for at least five years;
- The farm generated more than 50 percent of the farm owner’s income, or comprised more than 50 percent of the farm owner’s estate at the time of death;
- The farm was owned by the decedent for at least five years, and is located within the United States;
- The descendent or family member inheriting the estate continues to use the land for farming purposes;
- The farm-related income of the decdent in the three years prior to death does not exceed $750,000 annually; and,
- At the time of his or her death, the decedent associated with the estate was a U.S. citizen or legal resident of the United States.
Additionally, to ensure that farming families do not abuse the exemption, the legislation would institute a “recapture tax,” which would go into effect if the farm or ranch is subsequently sold or transferred outside the family, or is no longer used for farming or ranching.
This tax would be calculated based on the value of the estate at the time the property is sold or transferred or ceases to be used for farming or ranching.