Repeal of Ohio estate tax concerns transition planning professionals

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Commonly referred to as the "Death Tax" by critics, estate tax is one of the more controversial issues in agricultural policy circles, said an Ohio State Extension agricultural law expert.

Ohio's version of this tax provision is set to expire due to a provision in the state's biennial budget -- a prospect that concerns financial planning professionals.

"The primary concern is that the repeal, along with changes in the federal estate tax will serve as a disincentive to doing farm transition, business and estate planning," said Peggy Hall, director of the Agricultural and Resource Law Program of The Ohio State University Extension. "That's the concern I'm hearing from many attorneys."

The estate tax is a potentially confusing and burdensome issue; critics claim the tax forces farmers and small business owners to liquidate assets simply to pay the tax. Farm businesses are frequently framed within the debate as "asset rich, but cash poor."

Ohio's estate tax will disappear in 2013, a compromise date included in the final version of the budget bill passed by the General Assembly. The original authors of the provision intended to backdate repeal of the tax to the beginning of 2011, but settled on the later date in conference.

"Of course, the Ohio estate tax is a much smaller part of the overall estate tax issue," Hall said. "The federal estate tax is a much larger issue than the state tax."

The federal estate tax has been the center of a contentious debate for years; it returned to its full force this year after a gradual drawdown over the past decade, and brief sunset period in 2010.

While not necessarily supportive of the estate tax per se, legal professionals and farm transition planning experts fear farmers will neglect sound transition planning without the estate tax to contend with.

"I think it's fair to say that the fear of paying the estate tax is often what gets the family to the lawyer, to the accountant, and to their financial planners and gets the discussion going," Hall said. "I think that's probably the driver, and an important one."

Hall said while avoiding tax liability may be a key reason farm families focus on transition planning, several other key benefits arise from the discussion. Long-term management strategies, ownership transition and sound financial forecasting all can spring from the transition discussion.

Absent an estate tax, Hall points to the rising cost of long-term care, as well as retirement issues, as potential incentives to continue focusing on transition planning.

"In talking to my private-practice colleagues, the biggest challenge is getting farmers through the door to discuss these very challenging, very difficult personal decisions," Hall said.

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columbus  |  July, 05, 2011 at 06:41 PM

If the estate tax is there to provoke people into coming to see an accountant and lawyer, why can't they just make a law mandating that you go see these people without taking their money before they even get there? The reason for this tax is to take money from people who obviously can't defend for it being taken away (in case you didn't get it, I'm saying those people are dead).

Roland P. Freund    
Carlisle, PA  |  July, 06, 2011 at 04:03 PM

The chief reason why estate taxes become burdensome is that farm families often wait until someone is "in a box" before they begin any transfer process. By then there is usually very little option but to pay the estate taxes on all farm assets. Soon after the next generation decides to settle into the family farm business each heir should be given respondsibility and authority over some enterprise in the business. At least by by the time heirs are 35, they should be building equity in the business - often facilitated by a partnership or an LLC arrangement. Assets can be worked over in the order of: Inventories; Breeding Livestock; Machinery; Buildings. Land may be best left for estate settlement, but new land purchases should be made in the names of heirs to keep it out of taxable estates. If this is accomplished a large portion of assets will have passed free of estate taxes.

L Pyles    
Enon  |  July, 07, 2011 at 09:04 AM

"I think it's fair to say that the fear of paying the estate tax is often what gets the family to the lawyer, to the accountant, and to their financial planners and gets the discussion going," Hall said. "I think that's probably the driver, and an important one." qoute from article... Seems to me our Founding Fathers' understanding of personal property ownership would allow heads of family to pass on their hard-earned property to their heirs (requiring only a simple will), & the lawyers, the accountants, and the financial planners would not have the right to plunder their property.

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